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23 August, 09:20

Exercise 8-3 Lump-sum purchase of plant assets LO C1 Rodriguez Company pays $405,405 for real estate with land, land improvements, and a building. Land is appraised at $202,500; land improvements are appraised at $67,500; and a building is appraised at $180,000. Required:1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

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  1. 23 August, 09:31
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    Rodriguez Company

    Purchase price = $405,405

    Land is appraised at $202,500

    Land improvements $67,500

    Building appraised at $180,000

    Total appraised value $450,000

    Land will be apportioned $202,500/$450,000 x $405,405 = $182,432.25

    Land improvements will be apportioned $67,500/$450,000 x $405,405 = $60,810.75

    Building will be apportioned $180,000/$450,000 x $405,405 = $162,162

    Total cost of assets = $405,405.

    2. Journal Entries:

    Debit Land $182,432.25

    Debit Land Improvements $60,810.75

    Debit Building $162,162

    Credit Cash Account $405,405

    To record the purchase of the assets.

    Explanation:

    The purchase price is proportionately allocated to the items based on their appraisal values.
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