Land and a warehouse were acquired for $890,000.What amounts should be recorded in the accounting records for the land and for the warehouse if an appraisal showed the estimated values to be $400,000 for the land and $700,000 for the warehouse? (Round intermediate percentage calculations to 1 decimal place. )

Question

Quizplus · Accepted Answer

The cost of the land and warehouse should be recorded at their respective appraisal values of $400,000 and $700,000. To calculate the allocation between the two, we need to calculate the percentage of the total appraisal value that each asset represents.

Land percentage: $400,000 / ($400,000 + $700,000) = 0.3636 or 36.4%
Warehouse percentage: $700,000 / ($400,000 + $700,000) = 0.6364 or 63.6%

We can now use these percentages to allocate the total cost of $890,000 between the land and warehouse:

Land cost: 0.364 x $890,000 = $323,960
Warehouse cost: 0.636 x $890,000 = $566,040

Therefore, the amounts that should be recorded in the accounting records for the land and warehouse are $323,960 and $566,040, respectively.

Land and a Warehouse Were Acquired for $890,000