Land,a building and equipment are acquired for a lump sum of $1,000,000.The market values of the land,building and equipment are $300,000,$600,000 and $300,000,respectively.What is the cost assigned to the equipment?

Question

Quizplus · Accepted Answer

To determine the cost assigned to the equipment, we need to use the relative market values of each asset. We can do this by finding the total market value of all the assets (land + building + equipment), which is $1,200,000. Then we can calculate the percentage of the total market value that each asset represents.

Land = ($300,000 / $1,200,000) x 100% = 25%
Building = ($600,000 / $1,200,000) x 100% = 50%
Equipment = ($300,000 / $1,200,000) x 100% = 25%

So, the equipment represents 25% of the total market value. Therefore, we can assign 25% of the lump sum cost ($1,000,000) to the equipment:

Equipment cost = 25% x $1,000,000 = $250,000.

Therefore, the answer is B) $250,000.

Land,a Building and Equipment Are Acquired for a Lump Sum