Question

On March 31, 2020, Capital Investment Advisers paid $4,610,000 for land with two buildings on it. The plan was to demolish Building 1 and build a new store (Building 3) in its place. Building 2 was to be used as a company office and was appraised at a value of $1,028,940. A lighted parking lot near Building 2 had improvements (Land Improvements 1) valued at $608,010. Without considering the buildings or improvements, the tract of land was estimated to have a value of $3,040,050. Capital incurred the following additional costs: Cost to demolish Building 1 cost of additional landscaping Cost to construct new building (Building 3) Cost of new land improvements near Building 2 (Land improvements 2) $ 715,160 274,020 2,480,000 255,400 Required: 1. Allocate the costs incurred by Capital to the appropriate columns and total each column Land Building 2 Building 3 Land Land Improvements 1 Improvements 2 Purchase price Demolition Landscaping New building New improvements Totals

Answer 1

Allocate the costs incurred by Capital to the appropriate columns and total each column: Building 3 Building 2 $1,014,200 Land Imp.-1 Land Imp.-2 $599,300 [Ref: Workings] Land $2,996,500 $715,160 $274,020 Purchase price Demolition Landscaping New building New improvements Total $2,480,000 $3,985,680 $1,014,200 $2,480,000 $599,300 $255,400 $255,400 Workings: Therefore, Cost allocated to Land $2,996,500 [$4610000 x ($3040050 / $4677000) = $2996500] Appraised Assets purchased Value Land $3,040,050 Building 2 $1,028,940 Land Imp.-1 $608,010 Total appraised value $4,677,000 Cost allocated to Building 2 Cost allocated to Land Imp.-1 Total costs allocated $1,014,200 [$4610000 x ($1028940 / $4677000) = $1014200] $599,300 ($4610000 x ($608010 / $4677000) = $599300] $4,610,000 NOTE: Purchase price $4,610,000 [Given] Lumpsum purchase price paid for puchasing the assets are allocated to individual assets proportionately with their appraised values.