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24 September, 06:05

Sheridan Manufacturing purchased a new building with the surrounding land. The price paid was $2,400,000, including the commission charged on the sale. An appraisal of the land and building at the time of purchase indicated that the market value of the land was $2,000,000 and the market value of the building was $1,000,000. What amounts would be recorded for the purchase of the two assets?

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  1. 24 September, 06:07
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    Answer: Land, $1,600,000

    Building, $800,000

    Explanation:

    To answer this we would have to use a proportionality based allotment using the market values.

    For the land,

    Land is valued at 2 million out of a total of 3 million so,

    = 2/3

    It is 2/3 of the total market value of both so it will be 2/3 of the purchase value.

    = 2/3 * 2,400,000

    = $1,600,000

    Land will be recorded at $1,600,000

    Using the same method for the Building

    Building is valued at 1 million out of a total of 3 million so,

    = 1/3

    It is 1/3 of the total market value of both so it will be 1/3 of the purchase value.

    = 1/3 * 2,400,000

    = $800,000

    Building will be recorded at $800,000

    If you have any questions or need any clarification do react or comment.
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