Greer Manufacturing purchases property that includes land, buildings and equipment for $4.7 million. The company pays $185,000 in legal fees, $218,000 in commissions, and $111,000 in appraisal fees. The land is estimated at 28%, the buildings are at 40%, and the equipment at 32% of the property value. Prepare the journal entry that is required to record the purchase assuming that the company paid 50% of the amounts using cash and signed a note for the remainder.

Question

Gerardo Barker

Business

29 December, 14:41

Greer Manufacturing purchases property that includes land, buildings and equipment for $4.7 million. The company pays $185,000 in legal fees, $218,000 in commissions, and $111,000 in appraisal fees. The land is estimated at 28%, the buildings are at 40%, and the equipment at 32% of the property value. Prepare the journal entry that is required to record the purchase assuming that the company paid 50% of the amounts using cash and signed a note for the remainder.

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Sofia Merritt · Answer 1

The journal entry is shown below:

Land A/c Dr $1,459,920

Equipment A/c Dr $2,085,600

Building A/c Dr $1,668,480

To Cash A/c $2,607,000 ($5,214,000 * 50%)

To Notes payable A/c $2,607,000 ($5,214,000 * 50%)

(Being purchase of property is recorded)

The total property cost would be

= $4,700,000 + $185,000 + $218,000 + $111,000

= $5,214,000

Estimated value of land = $5,214,000 * 28% = $1,459,920

Estimated value of building = $5,214,000 * 40% = $2,085,600

Estimated value of equipment = $5,214,000 * 32% = $1,668,480