Question

Riverboat Adventures pays $520,000 plus $18,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $82,500, a building appraised at $214,500, and paddle boats appraised at $253,000. Compute the cost that should be allocated to the building.

Answer 1

Answer:

$209820

Explanation:

Given: Riverboat adventure pays= $520000.

           Closing cost to buy out competitor= $18000.

           Land appraised= $82500.

           Building appraised= $214500.

            Paddle boat appraised= $253000.

This is a case of lump sum purchase.

First finding the price paid of real estate.

Price paid for real estate= $\ 520000+\ 18000$

∴ Price paid for real estate= $\ 538000.$

Now, calculating cost allocated to building.

Total appraised value= $land\ appraised+ building\ appraised+ paddle\ boats\ appraised$

⇒ Total appraised value= $\ 82500+ \ 214500+\ 253000$

∴ Total appraised value= $\ 550000$

Cost allocated to building= $\frac{Building\ appraised\ value}{Total\ appraised\ value} \times price\ paid\ for \ real\ estate$

⇒ Cost allocated to building= $\frac{214500}{550000}\times 538000$

⇒  Cost allocated to building= $0.39\times 538000$

∴ Cost allocated to building= $\ 209820$

Hence, the cost that should be allocated to the building is $209820.