Question

Marigold Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $371,700. The estimated fair values of the assets are land $70,800, building $259,600, and equipment $94,400. At what amounts should each of the three assets be recorded?

Answer 1

Answer:

Land =  $ 61,950

Building = $ 227,150

Equipment =  $ 82,600

Explanation:

Given the following fair values

Land = $ 70,800

Building =  $259,600

Equipment = $ 94,400

Total cost (based on fair value) =  70,800 +  259,600 +  94,400

                                                    = $ 424,800

Cash payment given  =  $ 371,700

Using the proportion system to allocate the cost,

Cost of land =  $\frac{70800}{424800}$ × 371700

                     = $ 61,950

Cost of building = $\frac{259600}{424800}$ × 371700

                          =  $ 227,150

Cost of Equipment = $\frac{94400}{424800}$ × 371700

                               =  $ 82,600

Therefore, the amounts to be recorded in the books for land, building and equipment are $ 61,950,  $ 227,150 and  $ 82,600 respectively.