Question

Lexington Garden Supply pays $ 280,000 for a group purchase of land, building, and equipment. At the time of acquisition, the land has a current market value of $ 93,000 , the building's current market value is $ 186,000 , and the equipment's current market value is $ 31,000. Prepare a schedule allocating the purchase price of $ 280,000 to each of the individual assets purchased based on their relative market values, then journalize the lump-sum purchase of the three assets. The business signs a note payable for the purchase price.

Required:
Prepare a schedule allocating the purchase price of $ 280,000 to each of the individual assets purchased based on their relative market​ values, then journalize the​ lump-sum purchase of the three assets.

Answer 1

total purchase cost $280,000

land with FMV of $93,000

building with FMV of $186,000

equipment with FMV of $31,000

total FMV = $310,000

we will allocate purchase cost using the weighted average method:

land = ($280,000 / $310,000) x $93,000 = $84,000

building = ($280,000 / $310,000) x $186,000 = $168,000

equipment = ($280,000 / $310,000) x $31,000 = $28,000

total = $280,000

Dr Equipment 28,000

Dr Building 168,000

Dr Land 84,000

Cr Cash 280,000