Final answer:
To allocate the total cost of the real estate with land, land improvements, and a building, we need to determine the proportions of value for each asset. The land is appraised at $202,500, land improvements at $45,000, and the building at $202,500. To record the purchase, a journal entry is made allocating the costs to the respective assets.
Step-by-step explanation:
The cost of the real estate with land, land improvements, and a building is $326,430. To allocate the total cost among the three assets, we need to determine the proportions of value for each asset. The land is appraised at $202,500, the land improvements at $45,000, and the building at $202,500.
To allocate the cost, we can use the proportions of the appraised values. Firstly, calculate the total appraised value by adding the land, land improvements, and building values together: $202,500 + $45,000 + $202,500 = $450,000.
Then, divide the appraised value of each asset by the total appraised value to find the respective proportions: land value / total value = 202,500 / 450,000 = 0.45 (45%), land improvements value / total value = 45,000 / 450,000 = 0.1 (10%), building value / total value = 202,500 / 450,000 = 0.45 (45%).
Finally, multiply each proportion by the total cost to allocate the cost among the assets: land allocation = 0.45 * 326,430 = $146,893; land improvements allocation = 0.1 * 326,430 = $32,643; building allocation = 0.45 * 326,430 = $146,893.
To record the purchase, we will use the journal entry:
Debit:
- Land - $146,893
- Land Improvements - $32,643
- Building - $146,893
Credit: