Question

Exercise 8-3 Lump-sum purchase of plant assets LO C1 Rodriguez Company pays $405,405 for real estate with land, land improvements, and a building. Land is appraised at $202,500; land improvements are appraised at $67,500; and a building is appraised at $180,000.Required:1. Allocate the total cost among the three assets.2. Prepare the journal entry to record the purchase.

Answer 1

Answer:

Rodriguez Company

Purchase price = $405,405

Land is appraised at $202,500

Land improvements $67,500

Building appraised at $180,000

Total appraised value $450,000

Land will be apportioned $202,500/$450,000 x $405,405 = $182,432.25

Land improvements will be apportioned $67,500/$450,000 x $405,405 = $60,810.75

Building will be apportioned $180,000/$450,000 x $405,405 = $162,162

Total cost of assets = $405,405.

2. Journal Entries:

Debit Land $182,432.25

Debit Land Improvements $60,810.75

Debit Building $162,162

Credit Cash Account $405,405

To record the purchase of the assets.

Explanation:

The purchase price is proportionately allocated to the items based on their appraisal values.