The Jacob Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of $500,000. At the time of acquisition, Jacob paid $20,000 to have the assets appraised. The appraisal disclosed the following values:
What costs should be assigned to the buildings?

Question

The Jacob Corporation acquired land, buildings, and equipment from a bankrupt company at a lump-sum price of $500,000. At the time of acquisition, Jacob paid $20,000 to have the assets appraised. The appraisal disclosed the following values:  
What costs should be assigned to the buildings?

Quizplus · Accepted Answer

To assign costs to the buildings, we need to use the relative fair values given by the appraisal. The total fair value of the land, buildings, and equipment is 550,000 (300,000 + 200,000 + 50,000). This means that the buildings account for 36.4% (200,000/550,000) of the total fair value. 
To calculate the cost assigned to the buildings, we multiply this percentage by the total cost of the assets (500,000) and subtract the appraisal cost (20,000) since it was already paid:

(36.4% x 500,000) - 20,000 = 173,333

Therefore, the cost assigned to the buildings is $173,333, which is option B.

The Jacob Corporation Acquired Land, Buildings, and Equipment from a Bankrupt