Question

Rodriguez Company pays $385,000 for real estate plus $20,405 in closing costs. The real estate consists of land appraised at $193,500; land improvements appraised at $86,000; and a building appraised at $150,500.
Allocate the total cost among the three purchased assets and prepare the journal entry to record the purchase.

Answer 1

Answer: Please see answer in the explanation column

Explanation:

a) Allocate the total cost among the three purchased assets

Total Appraised value of the three assets = Land(193,5000 )+land improvement(86,000) + building (150,500) =$430,000

Total amount of acquisition of assets =Purchase price of assets + closing costs = $385,000 + 20,405= $405,405

1)Asset --Land

Appraised value= $193,500

percentage of appraised value   = appraised value of asset / total appraised value of the three assets x 100%= 193,500/430,000 x 100=  45%

Apportioned amount =  45% x $405405 = $182,432.25

2)Asset --Land improvements

Appraised value= $86,000

percentage of appraised value   = appraised value of asset / total appraised value of the three assets x 100%= 86,000/430,000 x 100=  20%

Apportioned amount =  20% x $405405 = $81,081

3) Asset --Building

Appraised value= $150,500

percentage of appraised value   = appraised value of asset / total appraised value of the three assets x 100%= 150,500/430,000 x 100=  35%

Apportioned amount =  35% x $405405 = $141,891.75

Total cost = Apportioned amount of ( Land + Land improvements  +Building ) =

$182,432.25 + $81,081+ $141,891.75= $405,405

b)Journal entry to record purchase of the three assets

Account                           Debit                           Credit

Land                              $182,432.25

Land improvements     $81,081

Building                          $141,891.75

Cash                                                                     $405,405