In a neighborhood where land typically represents 22 percent of total property value, a house sells for $425,000. What does the allocation method indicate for the site?
Correct Answer
A) $93,500
Why this is correct: The allocation method applies a market-derived land-to-total-value ratio. Here, 22% of $425,000 is calculated as $425,000 × 0.22 = $93,500. Why the other choices are wrong: "$85,000" is wrong; it is 20% of the sale price, not 22%. "$97,750" is wrong; it is 23% of the sale price. "$102,000" is wrong; it is 24% of the sale price. Exam tip: For allocation, multiply the sale price by the decimal form of the percentage (e.g., 22% = 0.22).
Why This Is the Correct Answer
Why this is correct: The allocation method applies a market-derived land-to-total-value ratio. Here, 22% of $425,000 is calculated as $425,000 × 0.22 = $93,500. Why the other choices are wrong: "$85,000" is wrong; it is 20% of the sale price, not 22%. "$97,750" is wrong; it is 23% of the sale price. "$102,000" is wrong; it is 24% of the sale price. Exam tip: For allocation, multiply the sale price by the decimal form of the percentage (e.g., 22% = 0.22).
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