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Question
On June 30, 2011 Howard Company acquired a 5-acre tract of land. On the tract was a warehouse that Howard intended to use as a distribution center. At the time of the purchase, the land had an assessed tax valuation of $2,250,000 and the building had an assessed tax value of $7,750,000. Howard paid $16,750,000 for the land and building. After the purchase the company paid $750,000 to have various modifications made to the building.
Required:
a. At what amount should Howard record the land and building?
b. For financial reporting purposes, why might the managers of Howard prefer to assign a larger portion of the $16,750,000 to the land rather than the building?
Answer
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