Land,buildings,and equipment are acquired for a lump sum of $950,000.The fair values of the three assets are respectively,$200,000,$500,000,and $300,000.What is the cost assigned to the building?

Question

Quizplus · Accepted Answer

The cost assigned to each asset is determined by multiplying the lump sum purchase price by the ratio of the fair value of each asset to the total fair value of all assets.

For the building: 
($500,000 fair value / $1,000,000 total fair value) x $950,000 lump sum purchase price = $475,000 cost assigned to building

Therefore, the correct choice is B.

Land,buildings,and Equipment Are Acquired for a Lump Sum of $950,000