What is the accounting term for this type of acquisition?
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Carver Inc. purchased a building and the land on which the building is situated for a total cost of $922,800 cash. The land was appraised at $244,081 and the building at $817,139.
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What is the accounting term for this type of acquisition?
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Determine the amount of the purchase cost to allocate to the land and the amount to allocate to the building.
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Would the company recognize a gain on the purchase?
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Record the purchase in a horizontal statements model.
Answer:
When a company purchases a building and land together for a lump sum amount, the purchase price needs to be allocated between the land and the building based on their relative fair values. This is done to properly record the cost of each asset on the company's balance sheet and to accurately report depreciation expenses in future periods.
In this case, Carver Inc. allocated the purchase price between the land and building based on their appraised values of $244,081 and $817,139, respectively.
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