Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $105,000, a building appraised at $210,000, and equipment appraised at $35,000. Compute the cost that should be allocated to the land.

Question

Quizplus · Accepted Answer

To allocate the purchase price to the land, building, and equipment, we need to use the appraised values as percentages of the total appraised value. The total appraised value is $350,000 ($105,000 + $210,000 + $35,000).

Land percentage = ($105,000 / $350,000) = 0.3
Building percentage = ($210,000 / $350,000) = 0.6
Equipment percentage = ($35,000 / $350,000) = 0.1

Next, we need to apply these percentages to the total cost of the purchase ($310,000 + $15,000 = $325,000) to determine the cost allocated to each asset.

Land cost = $325,000 x 0.3 = $97,500

Therefore, the cost that should be allocated to the land is $97,500, which corresponds to answer choice E.

Big River Rafting Pays $310,000 Plus $15,000 in Closing Costs