The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be ______.Multiple choice question.$53,333$100,000$80,000$66,667
Question
The Three Little Pigs purchased three houses for a total cost of 40,000; wood house 100,000. Using the basket purchase allocation, the recorded value of the brick house should be ______.Multiple choice question.100,00066,667
Solution
To solve this problem, we need to use the basket purchase allocation method. This method is used when a group of assets are purchased together for a single price, and the total cost needs to be allocated to the individual assets based on their relative fair market values.
Here are the steps to solve this problem:
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First, calculate the total appraisal value of all three houses. This is done by adding the appraisal values of the straw house, wood house, and brick house together:
60,000 (wood house) + 200,000
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Next, calculate the proportion of the total appraisal value that each house represents. For the brick house, this is done by dividing the appraisal value of the brick house by the total appraisal value:
200,000 (total appraisal value) = 0.5
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Finally, multiply the total cost of all three houses by the proportion that the brick house represents to find the recorded value of the brick house:
80,000
So, the recorded value of the brick house should be $80,000.
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