Question

Tamarack Company purchased a plant from one of its suppliers. The $1,000,000 purchase price included the land, a building, and factory machinery. Tamarack also paid $6,000 in legal fees to negotiate the purchase of the plant. An appraisal showed the following values for the items purchased: Property Assessed Value Land $126,000 Building 456,000 Machinery 318,000 Total $900,000 Using the assessed value as a guide, allocate the total purchase price of the plant to the land, building, and machinery accounts in Tamarack Company’s records. Do not round until your final answers. Round answers to the nearest dollar. Asset Allocation of Purchase Price Land Answer Building Answer Machinery Answer Total Answer

Answer 1

Answer

The total purchase price allocated to land, building, and machinery accounts is $140,840, $509,707 and $355,453 respectively.

Explanation

Calculation of Total purchase price

• Total purchase price = purchase price + legal fee        

                                   = 1.000.000 + 6.000

                                   = 1.006.000  

Allocation of the total purchase price to the land, building, and machinery accounts in Tamarack Company’s record:

• Land = Total purchase price * (Assesed Value of Land / Total Property       Assessed Value)

= 1.006.000 * (126.000 / 900.000)

= 140.840

• Building = Total Purchase Price * (Assesed Value of Machinery / Total Property Assessed Value)

Building =  1.006.000 * (318.000 / 900.000) = 355.453,3

Thus, the total purchase price allocated to land, building, and machinery accounts is $140,840, $509,707 and $355,453 respectively.