Land and a building on the land are purchased for $336,000. The appraised values of the land and building are $60,000 and $300,000, respectively. The cost allocated to the building should be

Question

Quizplus · Accepted Answer

The cost allocated to the building is based on its proportion of the total appraised value. The building's appraised value is $300,000 out of a total of $360,000 ($60,000 for land + $300,000 for building). The proportion is $300,000/$360,000 = 5/6. Therefore, the cost allocated to the building is 5/6 of $336,000, which is $280,000.

Land and a Building on the Land Are Purchased for $336,000