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Exercise 8-3 Lump-sum purchase of plant assets LO C1 Rodriguez Company pays $394,875 for real estate with land, land improvements, and a building. Land is appraised at $202,500; land improvements are appraised at $45,000; and a building is appraised at $202,500. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

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Answer:

Part 1

Land = $176,712

Land Improvements  = $29,269

Building = $176,712

Part 2

Debit :  Land $176,712

Debit :  Land Improvements  $29,269

Debit : Building  $176,712

Credit : Cash  $394,875

Explanation:

Cost allocations based on appraised values

Land = $202,500 / $452,500 x $394,875  = $176,712

Land Improvements = $45,000 / $452,500 x $394,875 = $29,269

Building = $202,500 / $452,500 x $394,875 = $176,712

Journal :

Debit the Assets with their allocated costs and credit cash

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