Ivanhoe Flight Academy acquired a new site for its training operations. The company was able to find a small unused airport with an
updated runway and hangar that could be used to accommodate a flight simulator, small aircraft, and classrooms. The location was
ideal as it was close to the city centre with a large population base from which to attract students. Ivanhoe paid $6.50 million to
acquire the site. Prior to providing financing for the purchase, the bank required that an appraisal be completed of the property. The
evaluation appraisal report came back with the following estimated market values: land $3,369,060, building $2,433,210, and land
improvements $436,730. Ivanhoe management explained, to the bank's satisfaction, that it paid the $261,000 premium because of the
property's proximity to the city centre and access to a large population base from which to draw students.
(a1)
Allocate the $6.50-million purchase price to the land, building, and land improvements.
Allocated cost
Land
$
Building
$
Land improvements
$
