Question

I keep getting this question wrong, please help! FV=Fair Value

Case 8-3 a x Your answer is incorrect. Try again. Maple Manufacturing Company recently purchased a property for use as a manufacturing facility. The company paid $949,000 for a building and four hectares of land. When recording the purchase, the company's accountant allocated $849,000 of the total cost to the building and the remaining $100,000 to the land. After some investigation and an independent appraisal, you determine that the building is deemed to have a value of only $368,000. You also discover that the property is located near a major highway providing excellent access for shipping, and is therefore quite valuable. Similar properties in the area have been selling for $138,000 per hectare. Maple Manufacturing is a very successful company and has traditionally reported very high net earnings. Last year, the company paid more than $200,000 in income taxes. (a) Determine the appropriate allocation between the buildings and land accounts for this basket purchase. (Remember that four hectares of land were purchased.) (Round Percent of total FV to 1 decimal place, e.g. 15.5% and allocation cost to the nearest whole dollar, e.g. 5,275.) Building Land Percent of total FV % Allocation of the purchase cost | 331200 55,200

Answer 1

	Building	Land
Percent of total FV	40%	60%
Allocation of the purchase cost	$379,600	$569,400

Calculations:

Total purchase cost of $949,000 for a building and four hectares of land should be allocated in proportion to their fair values.

Fair values:

Fair value of the Building	$368,000
Fair value of the Land [$138,000 x 4 Hectares]	$552,000
Total Fair value	$920,000

Allocation of purchase cost:

	Building	Land
Percent of total FV
[368,000/920,000] x 100	40%
[552,000/920,000] x 100		60%
Allocation of the purchase cost
[949,000 x 40%]	$379,600
[949,000 x 60%]		$569,400