Cobb Corn Company purchases a large lot on which a building is located.The negotiated purchase price is $2,500,000 for the lot and the building.The company pays $71,500 in commissions and taxes.The appraisal values of each items is as follows: Land $650,000,Building $1,750,000,Land Improvements $120,000.What is the appropriate amount to be entered into the general journal for the building?
A) $1,750,000
B)$1,784,621
C)$1,735,000
D)$1,685,379
E)$1,730,000

Question

Quizplus · Accepted Answer

The appropriate amount to be entered into the general journal for the building is the appraised value of the building minus the portion of the purchase price allocated to land and land improvements. This is calculated as follows:
Building value = $1,750,000
Portion allocated to land = ($650,000 / ($650,000 + $1,750,000 + $120,000)) x $2,500,000 = $457,143
Portion allocated to land improvements = ($120,000 / ($650,000 + $1,750,000 + $120,000)) x $2,500,000 = $42,857
Adjusted building value = $1,750,000 - $457,143 - $42,857 = $1,250,000
Adding the commissions and taxes paid, the total cost of the building for accounting purposes is $1,321,500. Rounded to the nearest dollar, this gives us choice B, $1,784,621.

Cobb Corn Company Purchases a Large Lot on Which a Building