Exercise 8-3 Lump-sum purchase of plant assets LO C1
Rodriguez Company pays $345,000 for real estate plus $18,285 in closing costs. The real estate consists of land appraised at $180,000; land improvements appraised at $40,000; and a building appraised at $180,000.
Required:
1. Allocate the total cost among the three purchased assets.
2. Prepare the journal entry to record the purchase.
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Record the costs of lump-sum purchase.
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Ans. | Total cost of acquisition = Real estate cost + closing cost | ||||
$345,000 + $18,285 | |||||
$363,285 | |||||
Particulars | Appraised | Percentage of total | Total cost of | Apportioned | |
Value | Appraised value (a) | Acquisition (b) | Cost (a * b) | ||
Land | $180,000 | 45% | $363,285 | $163,478.25 | |
Land improvements | $40,000 | 10% | $363,285 | $36,328.50 | |
Building | $180,000 | 45% | $363,285 | $163,478.25 | |
Total | $400,000 | $363,285.00 | |||
*Percentage of total appraised value = Particular item / Total appraised value * 100 | |||||
*Apportioned cost = Total cost of acquisition * Percent of total | |||||
Ans. 2 | Transaction | General Journal | Debit | Credit | |
1 | Land | $163,478.25 | |||
Land improvements | $36,328.50 | ||||
Building | $163,478.25 | ||||
Cash | $363,285.00 | ||||
(To record the cost of lump sum purchase) | |||||
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