Final answer:
Red River Bakery should allocate the purchase price of $380,000 between the land, building, and equipment based on their respective portions of the total estimated fair value. The amounts to be recorded are $133,000 for the land, $209,000 for the building, and $38,000 for the equipment.
Step-by-step explanation:
The Red River Bakery has purchased land, a building, and equipment for a lump sum of $380,000 while the estimated fair values are $168,000 for the land, $264,000 for the building, and $48,000 for the equipment, making a total of $480,000. To apportion the purchase price among the assets, we must first determine the percentage of the total estimated fair value that each asset represents and then multiply these percentages by the actual purchase price.
- Total estimated fair value = $168,000 + $264,000 + $48,000 = $480,000
- Percentage for the land = $168,000 / $480,000
- Percentage for the building = $264,000 / $480,000
- Percentage for the equipment = $48,000 / $480,000
Now we multiply the purchase price of $380,000 by each percentage:
- Amount for the land = $380,000 × (Land percentage)
- Amount for the building = $380,000 × (Building percentage)
- Amount for the equipment = $380,000 × (Equipment percentage)
We get the following allocated purchase prices for each asset:
- Land = $380,000 × ($168,000 / $480,000) = $133,000
- Building = $380,000 × ($264,000 / $480,000) = $209,000
- Equipment = $380,000 × ($48,000 / $480,000) = $38,000
These are the amounts that the Red River Bakery should record in the separate accounts for the land, building, and equipment, respectively.