Question

Red Rock Bakery purchases land, building, and equipment for a single purchase price of $440,000. However, the estimated fair values of the land, building, and equipment are $189,000, $297,000, and $54,000, respectively, for a total estimated fair value of $540,000. Required: Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment.

Answer 1

Answer and Explanation:

The computation of the amount that recorded in each separate account is shown below:

Asset Estimated fair value Allocated % Purchase price Recorded amount

Land $189,000 0.35 $440,000 $154,000

Building $297,000 0.55 $440,000 $242,000

Equipment $54,000 0.10 $440,000 $44,000

Total $540,000 100