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Exercise 6-9 (Static) Basket purchase allocation LO 6-1 Dorsey Company has expanded its operations by...

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Accounting

Exercise 6-9 (Static) Basket purchase allocation LO 6-1

Dorsey Company has expanded its operations by purchasing a parcel of land with a building on it from Bibb Company for $310,000. The appraised value of the land is $105,000, and the appraised value of the building is $245,000.

Required:

  1. Assuming that the building is to be used in Dorsey Company's business activities, what cost should be recorded for the land?
  2. Indicate why, for income tax purposes, management of Dorsey Company would want as little of the purchase price as possible allocated to land.
  3. Indicate why Dorsey Company 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.
  4. Assuming that the building is demolished at a cost of $30,000 so that the land can be used for employee parking, what cost should Dorsey Company record for the land?

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