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Rodriguez Company pays $342,225 for real estate with land, land improvements, and a building. Land is appraised at $245,000; land improvements are appraised at $73,500; and a building is appraised at $171,500. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

Sagot :

Answer and Explanation:

a. The allocation of the total cost among the three assets is given below:

                                      (a)                          (b)                      (a × b)  

      Appraise value      Total appraised      Total cost of      Apportioned

                                     value                                                          cost    

                                    Percentage              acquisition

Land  $245,000            50%                 $342,225                $171,112.50

Land

improvements $73,500  15%                $342,225               $51,333.75

Building $171,500          35%                $342,225               $119,778.75

Total      $490,000

b. The journal entry to record the purchase is given below:

Land   $171,112.50

Land improvements $51,333.75

Building $119,778.75

       To Cash $342,225

(To record the purchase)

Here the asset is debited as it rises the assets and cash is credited as it reduced the assets

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