Question

Exercise 8-6A Allocating costs for a basket purchase LO 8-1 Pitney Co. purchased an office building, land, and furniture for $604,200 cash. The appraised value of the assets was as follows: Land Building Furniture Total $101.506 196,244 378,954 $676, 704 Required a. Compute the amount to be recorded on the books for each asset. b. Show the purchase in a horizontal statements model like the following one: c. Prepare the general journal entry to record the purchase. Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the amount to be recorded on the books for each asset. (Do not round intermediate calculations. Round your final answers to nearest whole dollar) Allocated Cost Land Bulding Fumture Total < Prex 2016 il - Next >

Answer 1

A. Assets will be recorded on the basis of their percentage of total appraised values. So, first we will calculate the percentage of each asset to total appraised value as per below:

Total appraised value = $676704

Land's percentage of total appraised value = $101506 / $676704 = 0.15

Building's percentage of total appraised value = $196244 / $676704 = 0.29

Furniture's percentage of total appraised value = $378954 / $676704 = 0.56

Now, we will allocate the purchase price of $604200 to each asset on the basis of percentages arrived at above:

Allocated cost:

Cost of Land = $604200 * 0.15 = $90630

Cost of Building = $604200 * 0.29 = $175218

Cost of Furniture = $604200 * 0.56 = $338352

B In the horizontal statement, the cash in the assets side will be reduced by $604200 and land, building and furniture will be increased by their respective allocated cost. There will be no effect on equity i.e. revenue, expense and net income will remain unaffected. Also there will be a net decrease in cash in investing activities. Whole situation is presented in horizontal statement below:

- $604200 (Cash) + $90630 (Land) + $175218 (Building) + $338352 (Furniture) = NA (Equity) + NA (Revenue) - NA (Expenses) = NA (Net income) NC in cash -$604200 IA (Investing activity)

C Required journal entry is:

Date	Description	Debit	Credit
	Land	90630
	Building	175218
	Furniture	338352
	Cash		604200
	(for land, building and furniture purchased)