Question

Dorsey Co. has expanded its operations by purchasing a parcel of land with a building on it from Bibb Co. for $89,000. The appraised value of the land is $24,000, and the appraised value of the building is $102,000. information Required:

a. Assuming that the building is to be used in Dorsey Co.’s business activities, what cost should be recorded for the land? (Do not round intermediate calculations.)

b. Indicate why, for income tax purposes, management of Dorsey Co. would want as little of the purchase price as possible allocated to land. (Select all that apply.) Land is a current asset. Land is not a depreciable asset. Land value will not reduce taxable income. Land is a depreciable asset. Land value reduces taxable income.

c. Indicate why Dorsey Co. 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 Co. Appraised values are to be used because they represent the historical asset value. Appraised values are to be used because they represent the book value. Appraised values are to be used because they represent the asset's current value.

d. Assuming that the building is demolished at a cost of $11,000 so the land can be used for employee parking, what cost should Dorsey Co. record for the land?

Answer 1