A real estate management company buys an apartment complex for $4.8 million.An appraiser values the land at $1.1 million,the building at $3.4 million,and the equipment at $0.3 million.In addition,the company pays a 5% commission to a broker for arranging the sale.Which of the following statements is true?
A)The company would record $3.57 million as the acquisition cost of the building.
B)The company would record $1.1 million as the acquisition cost of the land.
C)The company would record $3.7 million as the acquisition cost of the building.
D)The company would record $0.24 million as an expense and $4.8 million as an asset.

Question

Quizplus · Accepted Answer

The acquisition cost of the building includes its appraised value plus a proportionate share of the commission. The commission is 5% of $4.8 million, which is $0.24 million. The building's share of the total appraised value is $3.4 million out of $4.8 million, so the building's acquisition cost is $3.4 million + ($0.24 million * ($3.4 million / $4.8 million)) = $3.57 million.

A Real Estate Management Company Buys an Apartment Complex for $4.8