Question

Exercise 7-3A Allocate costs in a basket purchase (LO7-1) Red Rock Bakery purchases land, building, and equipment for a single purchase price of $360,000. However, the estimated fair values of the land, building, and equipment are $115,000, $253,000, and $92,000, respectively, for a total estimated fair value of $460,000. Required: Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment

Answer 1

Land = $90,000

Building = $198,000

Land = $72,000

Step-by-step explanation:

The Fair Values of Land, Building and Equipment are used to apportion the single purchase price to the respective asset accounts as follows :

Land = $115,000/ $460,000 × $360,000

= $90,000

Building = $253,000/ $460,000 × $360,000

= $198,000

Land = $92,000/ $460,000 × $360,000

= $72,000