Question

Red Rock Bakery purchases land, building, and equipment for a single purchase price of $320,000. However, the estimated fair values of the land, building, and equipment are $147,000, $252,000, and $21,000, respectively, for a total estimated fair value of $420,000. Required: Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment.

Answer 1

Answer:

land              112,000 debit

building       192,000 debit

equipment     16,000 debit

        Cash                          320,000 credit

Explanation:

We will add each fair value and calculate the weight of each concept:

land              147,000 --> 147,000/420,000  = 35%

building      252,000 --> 252,000/420,000 = 60%

equipment     21,000  --> 21,000 / 420,000 =   5%

total             420,000

Now we assign this weight ot the lump used to acquire the assets:

land:           320,000 x 35% =  112,000

building      320,000 x 60% = 192,000

equipment: 320,000 x 55% =   16,000