Lump-Sum Purchase of Assets and Subsequent Events
Carter Development Company purchased, for cash, a large tract of land that was immediately platted and deeded into the following smaller sections:
Section 1, retail development with highway frontage
Section 2, multifamily apartment development
Section 3, single-family homes in the largest section
Based on recent sales of similar property, the fair market values of the three sections are as follows:
Section 1, $556,140
Section 2, $386,880
Section 3, $265,980
Required:
1. What value is assigned to each section of land if the tract was purchased for (a) $1,209,000, (b) $1,454,000, and (c) $821,000?
Total Purchase Price Scenario Land Section 1: Cost Assigned Land Section 2: Cost Assigned Land Section 3: Cost Assigned
a. $1,209,000 $ $ $
b. $1,454,000 $ $ $
c. $821,000 $ $ $
2. How does the purchase of the tract affect the balance sheet?
The purchase of the land total assets.
3. Why would Carter be concerned with the value assigned to each section? Would Carter be more concerned with the values assigned if instead of purchasing three sections of land, it purchased land with buildings?
Carter would be concerned with the if it intended to sell one or two sections and keep others. Carter would want the section it intended to sell to be assigned the value in order to defer a gain.