Final answer:
To determine the amounts Red Cedar Bakery should record for each asset, apply the relative fair value method using the fair values of the land, building, and equipment to allocate the total purchase price. The calculated amounts are $66,000 for land, $132,000 for the building, and $22,000 for the equipment.
Step-by-step explanation:
The question involves allocating the total purchase price among different assets acquired in a lump sum, a situation often encountered in business accounting. This process is commonly known as the allocation of purchase price or the 'basket purchase' allocation. To allocate the purchase price of $220,000 between the land, the building, and the equipment, one needs to use the relative fair value method. First, calculate the percentage of the total estimated fair value that each asset represents. The land is $96,000 out of $320,000 total estimated fair value, making its share 30% (96,000 / 320,000). The building is $192,000 out of $320,000, or 60% (192,000 / 320,000), and the equipment is $32,000 out of $320,000, or 10% (32,000 / 320,000). Then, multiply the total purchase price by these percentages to find out how much to allocate to each asset: Land: $220,000 x 30% = $66,000, Building: $220,000 x 60% = $132,000, and Equipment: $220,000 x 10% = $22,000. Therefore, Red Cedar Bakery should record $66,000 for land, $132,000 for the building, and $22,000 for the equipment in the respective asset accounts.