A company paid $150,000,plus a 7% commission and $5,000 in closing costs for a property.The property included land appraised at $87,500,land improvements appraised at $35,000,and a building appraised at $52,500.What should be the allocation of this property's costs in the company's accounting records?
A)Land $75,000;Land Improvements,$30,000;Building,$45,000.
B)Land $75,000;Land Improvements,$30,800;Building,$46,200.
C)Land $82,750;Land Improvements,$33,100;Building,$49,650.
D)Land $80,250;Land Improvements,$32,100;Building,$48,150.
E)Land $77,500;Land Improvements;$31,000;Building;$46,500.

Question

Quizplus · Accepted Answer

To allocate the costs of the property, we need to first subtract the closing costs and commission from the total price paid:

$150,000 + ($150,000 x 0.07) + $5,000 = $171,500

Then, we can use the appraised values of each component (land, land improvements, and building) to find their percentage of the total appraised value:

Land: $87,500 / ($87,500 + $35,000 + $52,500) = 0.50 or 50%
Land Improvements: $35,000 / ($87,500 + $35,000 + $52,500) = 0.20 or 20%
Building: $52,500 / ($87,500 + $35,000 + $52,500) = 0.30 or 30%

Finally, we can use these percentages to allocate the total cost of $171,500:

Land: 0.50 x $171,500 = $85,750
Land Improvements: 0.20 x $171,500 = $34,300
Building: 0.30 x $171,500 = $51,450

Rounding these amounts, we get:

Land: $82,750
Land Improvements: $33,100
Building: $49,650

Therefore, answer choice C is the best choice.

A Company Paid $150,000,plus a 7% Commission and $5,000 in Closing