Question

Carver Inc. purchased a building and the land on which the building is situated for a total cost of $808,800 cash. The land was appraised at $167,422 and the building at $762,698.

Required
a. What is the accounting term for this type of acquisition?
b. Determine the amount of the purchase cost to allocate to the land and the amount to allocate to the building.
c. Would the company recognize a gain on the purchase?
d. Record the purchase in a statements model.

Determine the amount of the purchase cost to allocate to the land and the amount to allocate to the building. (Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

	Allocated Cost Land Building Total $0

Record the purchase in a statements model like the following one. (Do not round intermediate calculations. Round your final answers to nearest whole dollar. In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, NC for net change in cash and NA for not affected. Enter any decreases to account balances with a minus sign.)

Show less

	CARVER INC. Statements Model Balance Sheet Income Statement Statement of Cash Flows Assets = Liabilities + Equity Revenue – Expenses = Net Income Cash + Land + Building = + + = + – =

Answer 1

a	Accounting term for this type of acquistion is Investment Property
b	Purchase cost to be allocated on the basis of Appraised value in between land and building
	Asset	Appraised value	Ratio	Purcahsed Cost allocation
	Land	$             1,67,422	18%	$                                 1,45,584
			(167422/930120)	(808800*18%)
	Building	$             7,62,698	82%	$                                 6,63,216
			(762698/930120)	(808800*82%)
	Total	$             9,30,120		$                                 8,08,800
c	No company is not allowed to recognize any gain on purchase, as it is the ability of the company that they have purchased land & building at a lower cost than the appraised value
d	Statement Models
	Balance Sheet
	For the period ended
	Assets
	Non Current Assets
	Building	$             6,63,216
	Land	$             1,45,584
	Total Non current assets	$             8,08,800
	Current Assets
	Cash	$           -8,08,800
	Total Assets	$                          -
	Liabilities
	Non current liabilties	$                          -
	Cuurent Liabilties	$                          -
	Total Liabilties	$                          -
	Statement of Cash Flows
	Operating Activity
	Profit before tax	$                          -
	Working Capital Changes	$                          -
	Cash generated from operations (A)	$                          -
	Investing Activity
	Capital Expenditure	$           -8,08,800
	Net cash used in investing activity (B)	$           -8,08,800
	Financing Activity
	Net cash from financing activity ©	$                          -
	Net increase in cash & cash equivalents (A+B+C)	$           -8,08,800
	Cash at the beginning	$                          -
	Cash at the end of the period	$           -8,08,800