Question

Rodriguez Company pays $395,380 for real estate with land, land improvements, and a building. Land is appraised at $157,040; land improvements are appraised at $58,890; and a building is appraised at $176,670.
Required:
1. Allocate the total cost among the three assets.
2. Prepare the journal entry to record the purchase. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Allocate the total cost among the three assets. Appraised Value Percent of Total x Total Cost of Appraised Value Acquisition = Apportioned Cost Land Land improvements Building Totals Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

Answer 1

Answer:

1. Allocate the total cost among the three assets:

+ Land: $158,152

+ Land improvement: $59,307

+ Building: $177,921.

2. Journal entry to record the purchase:

Dr Land                                 158,152

Dr Land improvement           59,307

Dr Building                             177,921

Cr Cash                                395,380

(to record the purchase of real estate)

Explanation:

1.

The total appraisal of the real estate is: Land value + Land improvement value + Building value = 157,040 + 58,890 + 176,670 = $392,600

in which: Land percentage: 157,040/392,600 = 40%

                Land improvement: 58,890/392,600 = 15%

                Building                  : 1 - 40% - 15% = 45%

=> Cost allocated to: Land = 395,380 x 40% = $158,152; Land improvement = 395,380 x 15% = $59,307; Building = 395,380 x 45% = $177,921.

2.

With the cost allocation above; items in the purchased real estate will be debited with the respective amount ( increase); and Cash account is credited (decrease) by $395,380 which is the total cost paid.

Answer 2

Answer:

1. Land = $158,152

Land improvements = $59,307

Building = $177,921

2. The entries required are;

Debit Land $158,152

Debit Land Improvement $59,307

Debit Building  $177,921

Credit  $395,380

Explanation:

The cost to be allocated to each asset is a proportion of the total cost paid for the estate. The cost of the real estate may be allocated to each asset based on the appraised value.

Total appraisal value of the real estate

= $157,040 + $58,890 + $176,670

= $392,600

To allocate the applicable percentages of cost of the various assets;

Land = ($157,040/$392,600) × 100% = 40%

Land improvements = ($58,890/$392,600) × 100% = 15%

Building = ($176,670/$392,600) × 100% = $177,921

Land = 40% × $395,380 = $158,152

Land improvements = 15% × $395,380 = $59,307

Building = 55% × $395,380 = $177,921

2. When assets are purchased, Debit Asset and Credit Cash with the cost of the asset.