Red Rock Bakery purchases land, building, and equipment for a single purchase price of $460,000. However, the estimated fair values of the land, building, and equipment are $168,000, $308,000, and $84,000, respectively, for a total estimated fair value of $560,000. Required: Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment.

Question

Jerome Sexton

Business

7 February, 06:12

Red Rock Bakery purchases land, building, and equipment for a single purchase price of $460,000. However, the estimated fair values of the land, building, and equipment are $168,000, $308,000, and $84,000, respectively, for a total estimated fair value of $560,000. 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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Emilee Rivers · Answer 1

Land cost is $ 138,000.00

Building cost is $253,000.00

Equipment cost is $69,000.00

Explanation:

The fair values can be used in apportioning the cost price of the assets between the three assets acquired as shown below:

Cost apportioned to an asset=Total cost*fair value of the asset/total fair values

Cost of land=$460,000*$168,000/$560,000

=$ 138,000.00

Cost of building=$460,000*$308,000/$560,000

=$ 253,000.00

cost of equipment=$460,000*$84,000/$560,000

=$69,000

The cash account would be credited with $460,000 and the respective asset accounts debited with the calculated figures