Question

Rodriguez Company pays $342,225 for real estate with land, land improvements, and a building. Land is appraised at $260,000; land improvements are appraised at $104,000; and a building is appraised at $156,000. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

Answer 1

Answer and Explanation:

a. The allocation of the total cost among the three assets is shown below:

(a) (b) (a × b)

Appraise value Total appraised Total cost of Apportioned

value cost

Percentage acquisition

Land $260,000 50% $342,225 $171,112.50

Land

improvemnts $104,000 20% $342,225 $68,445

Building $156,000 30% $342,225 $102,667.50

Total $520,000

b. The journal entry to record the purchase is given below:

Land $171,112.50

Land improvements $68,445

Building $102,667.50

To Cash $342,225

(To record the purchase)

Here the asset is debited as it increased the assets and cash is credited as it decreased the assets