ACCTSol68.pdf - 1 Award 1.00 point A company buys land and...

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1. Award: 1.00 point A company buys land and building for $240,000. The market value of the land is $150,000 and the building is $30,000. What cost will be allocated to the building? $120,000 $40,000 $192,000 $240,000 None of the other alternatives are correct The combined cost of the Land and Building was $240,000 - the historic cost accounting principle dictates that this be the total amount recorded; however, the Land and Building amounts need to be recorded in separate accounts as the Building will be depreciated and the Land will not. Since only a TOTAL cost is known for the purchase, an accountant will look for information which makes it possible to reasonably allocate the cost between the two accounts. Market values provided by appraisal or on property tax notices are examples of such information. The building is one-sixth of the total market value so one sixth of the cost is allocated to the building. This process is called proportionate allocation.
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  • One '14
  • Accountant, Market Value, Land

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