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?

Land, $1,600,000

Building, $800,000

Explanation:

To answer this we would have to use a proportionality based allotment using the market values.

For the land,

Land is valued at 2 million out of a total of 3 million so,

= 2/3

It is 2/3 of the total market value of both so it will be 2/3 of the purchase value.

= 2/3 * 2,400,000

= $1,600,000

Land will be recorded at $1,600,000

Using the same method for the Building

Building is valued at 1 million out of a total of 3 million so,

= 1/3

It is 1/3 of the total market value of both so it will be 1/3 of the purchase value.

= 1/3 * 2,400,000

= $800,000

Building will be recorded at $800,000

If you have any questions or need any clarification do react or comment.

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