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A company acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely equipped. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and equipment, respectively. At what amount would the company record the building? A) $720,000. B) $1,300,000. C) $1,200,000. D) None of these answer choices are correct

Answer :

Answer:

C) $1,200,000

Explanation:

The computation of the recording the building amount is shown below:

= (Lump sum price) ÷ (Fair value of building + Fair value of land + Fair value of equipment) × (Fair value of building)

= ($2,400,000) ÷ ($1,300,000 + $780,000 + $520,000) × ($1,300,000)

= ($2,400,000) ÷ ($2,600,000) × ($1,300,000)

=  $1,200,000

According to the historical cost principle, the fixed assets should be recorded at the purchase price or booked value in the books of accounts

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