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?
A)Land $1,600,000,Building $800,000
B)Land $2,000,000,Building $1,000,000
C)Land $2,000,000,Building $400,000
D)Land $1,400,000,Building $1,000,000

Question

Quizplus · Accepted Answer

Jointly purchasing land and building requires the $2,400,000 total cost to be split among the assets in proportion to the market value of assets as a whole as follows:
Land:
= $2,400,000 × [$2,000,000 ÷ ($2,000,000 + $1,000,000)] = $1,600,000
Building:
= $2,400,000 × [$1,000,000 ÷ ($2,000,000 + $1,000,000)] = $800,000

Sheridan Manufacturing Purchased a New Building with the Surrounding Land