Pinewood Company purchased two buildings on four acres of land. The lump-sum purchase price was $1,300,000. According to independent appraisals, the fair values were $630,000 (building A) and $280,000 (building B) for the buildings and $490,000 for the land. Required: Determine the initial valuation of the buildings and the land.

Pinewood Company

Initial valuation of the buildings and the land are:

Building A = $585,000

Building B = $260,000

Land =         $455,000

Explanation:

a) Data and Calculations:

Purchase price of buildings and land = $1,300,000

Fair values of:

Building A = $630,000

Building B = $280,000

Land =         $490,000

Total fair value = $1,400,000

Initial valuation of the buildings and the land are:

Building A = $630,000/$1,400,000 * $1,300,000 = $585,000

Building B = $280,000/$1,400,000 * $1,300,000 = $260,000

Land =         $490,000/$1,400,000 * $1,300,000 = $455,000

Total fair value =                                                      $1,300,000

a

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