On May 7, 2014, Shane Corporation purchased for $450,000 a tract of land on which was located a warehouse and an office building. The following data were collected concerning the property:

What are the appropriate amounts that Shane should record for the land, warehouse, and office building, respectively?

Question

On May 7, 2014, Shane Corporation purchased for $450,000 a tract of land on which was located a warehouse and an office building. The following data were collected concerning the property: 
 
What are the appropriate amounts that Shane should record for the land, warehouse, and office building, respectively?

Quizplus · Accepted Answer

To allocate the purchase price of the property between land, building, and warehouse, we need to use the relative fair market values of each component. The data provided give us the percentage breakdown of the total assessed value for the land, building, and warehouse. We can use this information to estimate the relative fair market values:

Land: $450,000 x 25% = $112,500
Warehouse: $450,000 x 20% = $90,000
Office building: $450,000 x 55% = $247,500

Therefore, the appropriate amounts that Shane should record for the land, warehouse, and office building are $112,500, $90,000, and $247,500, respectively. Choice D is the best answer.

On May 7, 2014, Shane Corporation Purchased for $450,000 a Tract