Dorsey Co. has expanded its operations by purchasing a parcel ofland with a building on it from Bibb Co. for $89,000. The appraisedvalue of the land is $24,000, and the appraised value of thebuilding is $102,000. information Required:
a. Assuming that the building is to be used in Dorsey Co.’sbusiness activities, what cost should be recorded for the land? (Donot round intermediate calculations.)
b. Indicate why, for income tax purposes, management of DorseyCo. would want as little of the purchase price as possibleallocated to land. (Select all that apply.) Land is a currentasset. Land is not a depreciable asset. Land value will not reducetaxable income. Land is a depreciable asset. Land value reducestaxable income.
c. Indicate why Dorsey Co. allocated the cost of assets acquiredbased on appraised values at the purchase date rather than on theoriginal cost of the land and building to Bibb Co. Appraised valuesare to be used because they represent the historical asset value.Appraised values are to be used because they represent the bookvalue. Appraised values are to be used because they represent theasset's current value.
d. Assuming that the building is demolished at a cost of $11,000so the land can be used for employee parking, what cost shouldDorsey Co. record for the land?
