Exercise 7-3A Allocate costs in a basket purchase (LO7-1) Red Rock Bakery purchases land, building, and equipment for a single purchase price of $360,000. However, the estimated fair values of the land, building, and equipment are $115,000, $253,000, and $92,000, respectively, for a total estimated fair value of $460,000. Required: Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment

Question

Sidney Hickman

Business

23 August, 15:55

Exercise 7-3A Allocate costs in a basket purchase (LO7-1) Red Rock Bakery purchases land, building, and equipment for a single purchase price of $360,000. However, the estimated fair values of the land, building, and equipment are $115,000, $253,000, and $92,000, respectively, for a total estimated fair value of $460,000. Required: Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment

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Answers (1)

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Johan Woodward · Answer 1

Land = $90,000

Building = $198,000

Land = $72,000

Explanation:

The Fair Values of Land, Building and Equipment are used to apportion the single purchase price to the respective asset accounts as follows:

Land = $115,000 / $460,000 * $360,000

= $90,000

Building = $253,000 / $460,000 * $360,000

= $198,000

Land = $92,000 / $460,000 * $360,000

= $72,000