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Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000.

-What value will be recorded for the building?
A)$175,000
B)$950,000
C)$800,000
D)$1,100,000

Question

[The following information applies to the questions displayed below.]

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,900,000. Harding paid $350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $374,000; Building, $1,100,000 and Equipment, $726,000.

-What value will be recorded for the building?
A)$175,000
B)$950,000
C)$800,000
D)$1,100,000

Quizplus · Accepted Answer

Accountants commonly allocate the purchase price of a basket purchase using the relative market value method.
Relative market value of building = Market value of building of $1,100,000 ÷ Total market value of all assets acquired of $2,200,000 (or $374,000 + $1,100,000 + $726,000)= 50%
Allocation to building = Purchase price of $1,900,000 × 50% = $950,000

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