Question

Carver Inc. purchased a building and the land on which the building is situated for a total cost of $879,500 cash. The land was appraised at $242,742 and the building at $768,683. Required What is the accounting term for this type of acquisition

Answer 1

Answer:

Lump-sum purchase

Explanation:

Lump-sum purchase occurs when two or more assets are acquired for a single price and requires that the purchase price be shared out to the assets bought on the basis of the fair market value of each asset acquired.

In this case, we allocated the purchase of $879,500 to each asset as follows:

Cost of land=$242,742/($242,742+$768,683)*$879,500

cost of land=$ 211,080  

Cost of building=$768,683/($242,742+$768,683)*$879,500

Cost of building=$668,420