Carter Development Company purchased, for cash, a large tract of land that was i

Question

Carter Development Company purchased, for cash, a large tract of land that was immediately platted and deeded?

Carter Development Company purchased, for cash, a large tract of land that was immediately platted and deeded into the following smaller section:
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, $630,000
Section 2, $378,000
Section 3, $252,000
Required
1. What value is assigned to each section of land if the tract was purchased for (a) $1,260,000, (b) $1,560,000, and (c) $1,000,000?
2. How does the purchase of the tract affect the balance sheet?
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? Explain.

Explanation / Answer

FMV in total - 1,260,000. Sect 1 = 50%, Sect 2= 30%, Sect 3 = 20% Allocate the purchase price based on these % and show the total on the Balance Sheet

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