The Manson Company Purchased Assets For A Lump-sum Price Of $1,700,000. An Appraisal Indicates The Following Market Prices: Equipment Land Building $330,000 $280,000 $760,000 What Is The Cost Assigned To The Land? (Do Not Round Any Intermediary

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Introduction

In business, companies often engage in asset purchases to acquire new equipment, land, and buildings to enhance their operations and increase revenue. However, determining the cost of these assets can be a complex process, especially when dealing with lump-sum prices and varying market values. In this article, we will delve into the details of the Manson Company's asset purchase and determine the cost assigned to the land.

The Asset Purchase

The Manson Company purchased assets for a lump-sum price of $1,700,000. This means that the company paid a single amount of $1,700,000 to acquire all the assets, including equipment, land, and buildings. However, an appraisal indicates that the market prices of these assets are as follows:

  • Equipment: $330,000
  • Land: $280,000
  • Building: $760,000

Determining the Cost of the Land

To determine the cost assigned to the land, we need to analyze the given information and apply the appropriate accounting principles. The cost of the land can be determined using the following steps:

  1. Identify the total cost of the assets: The total cost of the assets is the lump-sum price paid by the Manson Company, which is $1,700,000.
  2. Identify the market prices of the assets: The market prices of the assets are as follows:
    • Equipment: $330,000
    • Land: $280,000
    • Building: $760,000
  3. Determine the cost of the land: To determine the cost of the land, we need to subtract the market prices of the equipment and building from the total cost of the assets.

Calculation

Let's perform the calculation to determine the cost of the land:

Total cost of assets = $1,700,000 Market price of equipment = $330,000 Market price of building = $760,000

Cost of land = Total cost of assets - (Market price of equipment + Market price of building) = $1,700,000 - ($330,000 + $760,000) = $1,700,000 - $1,090,000 = $610,000

Conclusion

In conclusion, the cost assigned to the land is $610,000. This means that the Manson Company paid $610,000 for the land as part of the lump-sum price of $1,700,000. The remaining amount of $1,090,000 was allocated to the equipment and building.

Importance of Accurate Cost Allocation

Accurate cost allocation is crucial in business, as it affects the financial statements and decision-making processes. In this case, the cost of the land is an important component of the Manson Company's asset purchase, and determining its accurate value is essential for financial reporting and future business decisions.

Recommendations

Based on the analysis, we recommend that the Manson Company:

  1. Verify the market prices: Verify the market prices of the equipment and building to ensure accuracy.
  2. Reconcile the cost of the land: Reconcile the cost of the land with the total cost of the assets to ensure that the correct amount is allocated to the land.
  3. Update financial statements: Update the financial statements to reflect the accurate cost of the land.

Introduction

In our previous article, we analyzed the Manson Company's asset purchase and determined the cost assigned to the land. However, we understand that there may be additional questions and concerns regarding this topic. In this article, we will address some of the frequently asked questions (FAQs) related to the Manson Company's asset purchase.

Q&A Guide

Q1: What is the total cost of the assets purchased by the Manson Company?

A1: The total cost of the assets purchased by the Manson Company is $1,700,000.

Q2: What are the market prices of the equipment, land, and building?

A2: The market prices of the equipment, land, and building are as follows:

  • Equipment: $330,000
  • Land: $280,000
  • Building: $760,000

Q3: How was the cost of the land determined?

A3: The cost of the land was determined by subtracting the market prices of the equipment and building from the total cost of the assets.

Q4: What is the cost assigned to the land?

A4: The cost assigned to the land is $610,000.

Q5: Why is accurate cost allocation important in business?

A5: Accurate cost allocation is important in business because it affects the financial statements and decision-making processes. Inaccurate cost allocation can lead to incorrect financial reporting and poor business decisions.

Q6: What are some common mistakes to avoid when determining the cost of assets?

A6: Some common mistakes to avoid when determining the cost of assets include:

  • Failing to verify market prices
  • Failing to reconcile the cost of assets with the total cost of the assets
  • Failing to update financial statements to reflect accurate cost of assets

Q7: How can the Manson Company ensure accurate financial reporting and decision-making?

A7: The Manson Company can ensure accurate financial reporting and decision-making by:

  • Verifying market prices of assets
  • Reconciling the cost of assets with the total cost of the assets
  • Updating financial statements to reflect accurate cost of assets

Q8: What are some best practices for asset purchase and cost allocation?

A8: Some best practices for asset purchase and cost allocation include:

  • Conducting thorough market research to determine market prices of assets
  • Using accurate and reliable methods to determine the cost of assets
  • Regularly reviewing and updating financial statements to reflect accurate cost of assets

Conclusion

In conclusion, the Manson Company's asset purchase is a complex process that requires accurate cost allocation. By understanding the cost of the land and following best practices for asset purchase and cost allocation, the Manson Company can ensure accurate financial reporting and make informed business decisions.

Additional Resources

For more information on asset purchase and cost allocation, please refer to the following resources:

  • Financial Accounting Standards Board (FASB) guidelines on asset purchase and cost allocation
  • Generally Accepted Accounting Principles (GAAP) guidelines on asset purchase and cost allocation
  • Industry-specific guidelines and best practices for asset purchase and cost allocation

By following these guidelines and best practices, businesses can ensure accurate financial reporting and make informed business decisions.