Simpson and Homer Corporation acquired an office building on three acres of land for a lump-sum price of $3,350,000. The building was completely furnished. According to independent appraisals, the fair values were $2,560,000, $3,200,000, and $640,000 for the building, land, and furniture and fixtures, respectively. The initial values of the building, land, and furniture and fixtures would be:

Building = $1,340,000

Land = $1,675,000

Furniture and fixtures = $335,000

Explanation:

This is an example of Basket Asset Purchase whereby a number of assets purchased as one package.

Initial value of each asset is are determined by the Basket Asset Purchase based on their relative fair market value as follows:

Building = $3,350,000 * [$2,560,000 : ($2,560,000 + $3,200,000 + $640,000) ] = $3,350,000 * 0.4 = $1,340,000

Land = $3,350,000 * [$3,200,000 : ($2,560,000 + $3,200,000 + $640,000) ] = $3,350,000 * 0.5 = $1,675,000

Furniture and fixtures = $3,350,000 * [$640,000 : ($2,560,000 + $3,200,000 + $640,000) ] = $3,350,000 * 0.1 = $335,000

Therefore, the initial values of the building, land, and furniture and fixtures would be $1,340,000, $1,675,000, and $335,000 respectively.