Question

Question: Schwartzkopf Co. purchased for \(2,200,000 property that included both land and a building to be used in operations. The seller’s book value was \)300,000 for the land and \(900,000 for the building. By appraisal, the fair value was estimated to be \)500,000 for the land and $2,000,000 for the building. At what amount should Schwartzkopf report the land and the building at the end of the year?.

Short answer

Answer

Land reported at $440,000 and building reported at $1,760,000.

Step-by-step solution

Cost of land

$$\begin{gathered} \mathbf{CostofLand}\mathbf{=}\frac{\mathbf{FairvalueofLand}}{\mathbf{FairvalueofLand}\mathbf{+}\mathbf{FairvalueofBuilding}}\mathbf{\times }\mathbf{PurchasePrice} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{500}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}}\mathbf{\times }\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{200}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{440}\mathbf{,}\mathbf{000} \end{gathered}$$

Cost of building

$$\begin{gathered} \mathbf{CostofBuilding}\mathbf{=}\frac{\mathbf{FairvalueofBuilding}}{\mathbf{FairvalueofLand}\mathbf{+}\mathbf{FairvalueofBuilding}}\mathbf{\times }\mathbf{PurchasePrice} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{500}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}}\mathbf{\times }\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{200}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{760}\mathbf{,}\mathbf{000} \end{gathered}$$