Question

Rodriguez Company pays $395,380 for real estate with land, land improvements, and a building. Land is appraised at $157,040; land improvements are appraised at $58,890; and a building is appraised at $176,670. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

Answer 1

Dr land $158,152.00

Dr land improvements $59,307.00

Dr Building $ 177,921.00

Cr cash $395,380

Step-by-step explanation:

The initial cost of the real estate of $395,380 can be allocated between the different components based on the appraised values of the components as follows:

Total appraised values=$157,040+$58,890+$176,670=$392,600.00

cost of land=$157,040/ 392,600*$395,38=$158,152.00

land improvement=$58,890/$392,600.00*$395,380=$59,307.00

Building=$176,670/$392,600.00*$395,380=$ 177,921.00