Question

Rodriguez Company pays $342,225 for real estate with land, land improvements, and a building. Land is appraised at $245,000; land improvements are appraised at $73,500; and a building is appraised at $171,500. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

Answer 1

Answer and Explanation:

a. The allocation of the total cost among the three assets is given below:

(a) (b) (a × b)

Appraise value Total appraised Total cost of Apportioned

value cost

Percentage acquisition

Land $245,000 50% $342,225 $171,112.50

Land

improvements $73,500 15% $342,225 $51,333.75

Building $171,500 35% $342,225 $119,778.75

Total $490,000

b. The journal entry to record the purchase is given below:

Land $171,112.50

Land improvements $51,333.75

Building $119,778.75

To Cash $342,225

(To record the purchase)

Here the asset is debited as it rises the assets and cash is credited as it reduced the assets