Question

Crow Co. purchased some of the machinery of Hare Inc., a bankrupt competitor, at a liquidation sale for a total cost of $15,000. Crow’s cost of moving and installing the machinery totaled $1,400. The following data are available:

Item Punch press Lathe Welder Hare's Net Book Value on the Date of Sale 10,760 8,320 3,000 List Price of Same Item If New $ 18,000 9,000 5,000 Appraiser's Estimate of Fair Value 14,000 6,000 3,090 Required: a. Calculate the amount that should be recorded by Crow Co. as the cost of each piece of equipment. (Do not round intermediate calculations.) Purchase Price Allocation Punch press Lathe Welder Total

Answer 1

Answer -

	Purchase Price Allocation
Punch press	$9943.32
Lathe	$4262.36
Welder	$2194.32
Total	$16400.00

Calculation:

1. Total allocation costs:

= Total cost + Moving and installing cost

= $15000 + $1400

= $16400

2. Total appraiser’s estimate of fair value:

= Punch press (appraiser’s estimate of fair value) + Lathe (appraiser’s estimate of fair value) + Welder (appraiser’s estimate of fair value)

= $14000 + $6000 + $3090

= $23090

3. Percentage of total appraiser’s estimate of fair value:

a. Punch press:

= (Appraiser’s estimate of fair value / Total appraiser’s estimate of fair value) * 100

= ($14000 / $23090) * 100

= 60.63%

b. Lathe:

= (Appraiser’s estimate of fair value / Total appraiser’s estimate of fair value) * 100

= ($6000 / $23090) * 100

= 25.99%

c. Welder:

= (Appraiser’s estimate of fair value / Total appraiser’s estimate of fair value) * 100

= ($3090 / $23090) * 100

= 13.38%

4. Purchase price allocation:

a. Punch press:

= Percentage of total appraiser’s estimate of fair value * Total allocation costs

= 60.63% * $16400

= $9943.32

b. Lathe:

= Percentage of total appraiser’s estimate of fair value * Total allocation costs

= 25.99% * $16400

= $4262.36

c. Welder:

= Percentage of total appraiser’s estimate of fair value * Total allocation costs

= 13.38% * $16400

= $2194.32