Dorsey Co. has expanded its operations by purchasing a parcel of land with a bui

Question

Dorsey Co. has expanded its operations by purchasing a parcel of land with a building on it from Bibb Co. for $87,000. The appraised value of the land is $28,000, and the appraised value of the Assuming that the building is razed at a cost of $12,000 so the land can be used for employee parking, what cost should Dorsey Co. record for the land?building is $98,000. Explain why Dorsey Co. allocated the cost of assets acquired based on appraised values at the purchase date rather than on the original cost of the land and building to Bibb Co. Appraised values are to be used because they represent the current asset values. Appraised values are to be used because they represent the historical asset value. Appraised values are to be used because they represent the book value.

Explanation / Answer

Dorsey purchase allocation:

Dorsey purchase allocation:

By extracting the information, combined purchased cost of land and building $90,000 Appraisal value of land 28000 Appraisal value of building 98000 Razing cost of building 12000 The expense on razing building would not affect the value of land. It is a separate transaction. It will be recorded as a DR Demolition Expense $12,000 CR Cash $12,000 value of land can be the maximum appraisal value of $28,000 Dorsey Co. allocated the cost of assets acquired based on appraised values at the purchase date rather than on the original cost of the land and building to Bibb Company because Appraised values represent the current asset values

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.