The buyer of a comparable property paid $300,000 in cash and also assumed a separate $20,000 liability. The liability was payable in cash at closing and was not included in the $300,000. No deferred payments were involved. What is the total immediate consideration?
Correct Answer
D) $320,000
300000+20000=320000. Common errors: deducting the assumed liability instead of adding it gives $280,000; leaving out the assumed liability gives $300,000; reporting only the liability gives $20,000.
Why This Is the Correct Answer
Option D is correct because the buyer gives $300,000 in cash plus takes on a separate $20,000 liability payable in cash at closing. Adding them gives 300,000 + 20,000 = $320,000. Assumed liabilities paid by the buyer are part of what the buyer gave for the property.
Why the Other Options Are Wrong
Option A: $20,000
Option A, $20,000, is wrong because it reports only the assumed liability and ignores the $300,000 cash. Total consideration is 300,000 + 20,000 = $320,000.
Option B: $280,000
Option B, $280,000, is wrong because it deducts the assumed liability instead of adding it: 300,000 − 20,000 = 280,000. The buyer took on the liability in addition to paying cash, so the correct total is $320,000.
Option C: $300,000
Option C, $300,000, is wrong because it leaves out the separately assumed $20,000 liability. Adding it gives 300,000 + 20,000 = $320,000.
Buyer takes on debt, add it
Anything the buyer pays or assumes on top of the stated cash adds to the total consideration.
How to use: Use this when a sale includes assumed liabilities alongside cash.
Exam Tip
Check whether the stem says the liability is included in or separate from the stated price before adding it.
Common Mistakes to Avoid
- -Subtracting an assumed liability instead of adding it
- -Ignoring liabilities the buyer assumed outside the stated price
- -Double counting a liability that is already included in the stated price
Concept Deep Dive
Analysis
This question tests calculating total consideration when a buyer pays cash and also assumes a separate liability. The stem states the $20,000 liability is payable in cash at closing and not included in the $300,000. So the total immediate consideration is the sum of both.
Background Knowledge
The consideration in a sale includes everything of value the buyer gives, including liabilities the buyer assumes. When a buyer assumes debt or obligations, those amounts are added to cash paid. Deferred obligations may need discounting to a cash equivalent, but here the liability is payable in cash at closing.
Real-World Application
An appraiser verifies a commercial sale where the buyer paid cash and also paid off the seller's delinquent special assessment at closing. Because the assessment payoff was separate from the stated price, the appraiser adds it to determine total consideration. The report explains how the analyzed price was derived.
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