Bixby Corporation purchased land and a building for $800,000. An appraisal indicates that the land's value is $400,000 and the building's value is $500,000. When recording this transaction Galaxy should debit:

Question

Quizplus · Accepted Answer

The correct entry to record the purchase of land and building is to split the cost between the two assets based on their respective fair market values. According to the appraisal, the land's value is $400,000 and the building's value is $500,000, for a total of $900,000. Therefore, the cost assigned to the building is $500,000/$900,000 x $800,000 = $444,444. The remaining cost is assigned to the land, which is $355,556.

So, it should be debited to the Building Account for $444,444.

Bixby Corporation Purchased Land and a Building for $800,000