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27 September, 13:26

Land, a building and equipment are acquired for a lump sum of $1,000,000. The market values of the land, building and equipment are $300,000, $600,000 and $300,000, respectively. What is the cost assigned to the equipment?

Select one:

a. $200,000

b. $250,000

c. $333,333

d. $300,000

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Answers (1)
  1. 27 September, 17:10
    0
    The answer is option (b). $250,000

    Explanation:

    Step 1: Determine total market value

    The expression for the total market value is;

    Total market value=land value+building value+equipment value

    where;

    land value=$300,00

    building value=$600,000

    equipment value=$300,000

    replacing;

    Total market value = (300,000+600,000+300,000) = $1,200,000

    Total market value=$1,200,000

    Step 2: Determine fraction of the total market value that is equipment

    Equipment fraction=equipment value/total market value

    where;

    equipment value=$300,000

    total market value=$1,200,000

    replacing;

    Equipment fraction=300,000/1,200,000=0.25

    Step 3: Determine cost assigned to the equipment

    Cost assigned to the equipment=equipment fraction*lump sum

    where;

    equipment fraction=0.25

    lump sum=$1,000,000

    replacing;

    Cost assigned to the equipment = (0.25*1,000,000) = 250,000

    Cost assigned to the equipment=$250,000
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