Laforge Cement Company Bought a Piece of Land with a Building

question 184

Essay

Laforge Cement Company bought a piece of land with a building on it for a total of $4,400,000. They obtained two appraisals to estimate the fair values of the land and building. $$\begin{array} { | l | r | r | } \hline & \text { Appraisal 1 } & \text { Appraisal 2 } \\\hline \text { Land } & \$ 1,200,000 & \$ 1,000,000 \\\hline \text { Building } & \$ 3,600,000 & \$ 4,000,000 \\\hline\end{array}$$ Required:
1. If management' s objectives are to minimize the amount of income tax they pay, which of the two appraisals should they use to allocate the purchase price? Explain your answer.
2. Based on your answer in part a calculate the amount to be allocated to the Land and the Building account.
3. Under what circumstances might management wish to use the other appraisal value ?

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Definitions:

PhCHO

Refers to the chemical compound benzaldehyde, which consists of a benzene ring bonded to an aldehyde group.

PhCOCl

Commonly referred to as benzoyl chloride, it's a compound consisting of a benzene ring attached to a carbonyl chloride group, used in organic synthesis.

Mechanistic Step

Refers to an individual stage or transition within the broader sequence of events that constitute a chemical reaction's mechanism.

Amine

An organic compound and functional group consisting of a basic nitrogen atom with a lone pair and deriving from ammonia by replacement of one or more hydrogen atoms by organic groups.