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27 September, 03:01

S7-2 (similar to) Foley Distribution Service pays $ 290 comma 000 for a group purchase of land, building, and equipment. At the time of acquisition, the land has a current market value of $ 64 comma 000 , the building's current market value is $ 208 comma 000 , and the equipment's current market value is $ 48 comma 000. Prepare a schedule allocating the purchase price of $ 290 comma 000 to each of the individual assets purchased based on their relative market values, then journalize the lump-sum purchase of the three assets. The business signs a note payable for the purchase price.

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  1. 27 September, 05:50
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    Asset Allocated cost

    Land $58,000

    Building $188,500

    Equipment $43,500

    Debit Assets $290,000

    Credit Note payable $290,000

    Being entries to recognize the purchase of assets by note payable.

    Explanation:

    The cost of each asset (land, building, and equipment) will be allocated to them based on the market value. The higher the market value, the higher the cost apportioned to each asset from the single amount paid for all the assets.

    Given that the market values are in the ratio of

    64,000:208,000:48,000 for land, building and equipment respectively. This is equivalent to ratios 4:13:3.

    Hence, where the total amount paid is $290,000, cost apportionment

    Land

    = 4/20 * $290,000

    = $58,000

    Building

    = 13/20 * $290,000

    = $188,500

    Equipment

    = 3/20 * $290,000

    = $43,500

    When an asset is purchased with a note payable signed, the asset is debited and the note payable is credited.
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