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Pinewood Company purchased two buildings on four acres of land. The lump-sum purchase price was $1,800,000. According to independent appraisals, the fair values were $855,000 (building A) and $475,000 (building B) for the buildings and $570,000 for the land. Required: Determine the initial valuation of the buildings and the land.

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Tundexi

Answer:

Land = $540,000: Building A = $810,000: Building B = $450,000

Explanation:

Assets        Fair values   Weight  Valuation

Land            $570,000     30%       $540,000

Building A   $855,000     45%        $810,000

Building B   $475,000      25%       $450,000

Total            $1,900,000                 $1,800,000

Note: Valuation = Weight*Lump - Sum purchase amount

          Weight = Fair values / Total fair values

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