Cantor Corporation acquired a manufacturing facility on four acres of land for a lump-sum price of $8,000,000. The building included used but functional equipment. According to independent appraisals, the fair values were $4,500,000, $3,000,000, and $2,500,000 for the building, land, and equipment, respectively. The initial values of the building, land, and equipment would be:

Question

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Since the purchase price was a lump-sum price, the values of building, land, and equipment must be allocated based on their relative fair values. Using the relative fair values, the initial values of the building, land, and equipment are $4,000,000, $2,666,667, and $1,333,333 respectively. Therefore, the closest option is C, which is $4,000,000 for the building, $2,700,000 for the land, and $1,300,000 for the equipment (which is only a slight variation due to rounding). Options A and B are incorrect because they do not allocate the purchase price based on the relative fair values. Option D is incorrect because there is a best choice.

Cantor Corporation Acquired a Manufacturing Facility on Four Acres of Land