Connect Access Card For Financial Accounting Fundamentals
Connect Access Card For Financial Accounting Fundamentals
7th Edition
ISBN: 9781260482829
Author: John J Wild
Publisher: McGraw-Hill Education
Question
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Chapter 8, Problem 1MCQ
To determine

Ascertain the allocation of property costs to the three assets purchased.

Expert Solution & Answer
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Explanation of Solution

Lump-Sum purchase:

If a company purchases a group of assets collectively and a lump sum amount is paid for such purchase, then it is referred to as basket purchase. The accounting term for this type of acquisition is the lump-sum purchase.

Ascertain the allocation of property costs to the three assets purchased as follows:

AssetsFair Market Value (in $)Percent of total=(Market value of specific asset)(Market value of total assets)Allocation of the purchase price based on the percentage of total($326,000×Specific asset's percentage of total)
Land175,000$175,000$350,000 =50%163,000
Land Improvements70,000$70,000$350,000 =20%65,200
Building105,000$105,000$350,000=30%97,800
Total$350,000 $326,000

Table (1)

Hence, the allocation of property costs to the three assets purchased is option b. Land, $163,000; Land Improvements, $65,200; Building, 97,800.

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Chapter 8 Solutions

Connect Access Card For Financial Accounting Fundamentals

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