Question

Rodriguez Company pays $363,285 for real estate with land, land improvements, and a building. Land is appraised at $198,000; land improvements are appraised at $66,000; and a building is appraised at $176,000. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

Answer 1

Answer:

1.Land $163,478

Land Improvement $54,493

Building $145,314

2.Dr Land $163,478

Dr r Land Improvement $54,493

Dr Building $145,314

Cr Cash $363,285

Explanation:

1. Calculation to Allocate the total cost among the three assets

First step is to Add up all expenditure costs Total Expenditure costs =$198,000+$66,000+$176,000

Total Expenditure costs =$440,000

Second step is to divide each expenditure up by the total amount

Land=($198,000/$440,000= 0.45)

Land improvement=($66,000/$440,000= 0.15)

Building=($176,000/$440,000= 0.40)

Now let Allocate the total cost among the three assets

Land=0.45* $363,285

Land = $163,478

Land improvement=0.15*$363,285

Land Improvement=$54,493

Building=0.40*$363,285

Building=$145,314

Total $363,285

($163,478+$54,493+$145,314)

Therefore the total allocation cost among the three assets is:

Land $163,478

Land Improvement $54,493

Building $145,314

2. Preparation of the journal entry to record the purchase

Dr Land $163,478

Dr r Land Improvement $54,493

Dr Building $145,314

Cr Cash $363,285

(To record purchase)