Simpson and Homer Corporation acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely furnished. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and furniture and fixtures, respectively. The initial values of the building, land, and furniture and fixtures would be:
A)$1,300,000, $780,000, $520,000.
B)$1,200,000, $720,000, $480,000.
C)$720,000, $1,200,000, $480,000.
D)None of these.

Question

Quizplus · Accepted Answer

The initial values are allocated based on the proportion of the fair values. The total fair value is $2,600,000 ($1,300,000 + $780,000 + $520,000). The building's allocation is ($1,300,000/$2,600,000) * $2,400,000 = $1,200,000. The land's allocation is ($780,000/$2,600,000) * $2,400,000 = $720,000. The furniture's allocation is ($520,000/$2,600,000) * $2,400,000 = $480,000.

Simpson and Homer Corporation Acquired an Office Building on Three