Question

In a lump-sum purchase of assets, the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times

1) the residual value percentages of each asset.
2) the relative fair value percentages of each asset.
3) the relative book value percentages of each asset.
4) the estimated percentages allocated to each asset.

Answer 1

The total acquisition cost in a lump-sum purchase of assets is allocated to individual assets by multiplying the lump-sum purchase price by the 2) relative fair value percentages of each asset.

Step-by-step explanation:

In a lump-sum purchase of assets, the total acquisition cost is allocated to the individual assets by multiplying the lump-sum purchase price times the relative fair value percentages of each asset. For example, let's say you make a lump-sum purchase of assets for $10,000, and you have three assets with fair value percentages of 40%, 30%, and 30% respectively. To allocate the cost, you would multiply $10,000 by the fair value percentages of each asset (40% * $10,000 = $4,000, 30% * $10,000 = $3,000, 30% * $10,000 = $3,000).