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21 April, 01:22

Rodriguez Company pays $325,000 for real estate plus $17,225 in closing costs. The real estate consists of land appraised at $240,000; land improvements appraised at $96,000; and a building appraised at $144,000. Required: 1. Allocate the total cost among the three purchased assets. 2. Prepare the journal entry to record the purchase.

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  1. 21 April, 01:39
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    1. Allocated cost to three purchased assets as followed:

    Land: $171,112.5

    Land improvements: $68,445

    Building: $102,667.5

    2. The entry to record the purchase:

    Dr Land $171,112.5

    Dr Land improvements $68,445

    Dr Building $102,667.5

    Cr Cash $342,225

    Explanation:

    Working note on the allocation of cost to purchased asset:

    - Total cost of asset : 325,000 + 17,225 = $342,225

    - Percentage of value of each assets in the three assets:

    + Land = 240,000 / (240,000 + 96,000 + 144,000) = 50%; Land improvement : 96,000 / (240,000 + 96,000 + 144,000) = 20%; Building: 144,000 / (240,000 + 96,000 + 144,000) = 30%.

    - Allocation of cost will be based on the percentage of value of each asset as followed:

    Land = 342,225 x 50% = $171,112.5; Land Improvements = 342,225 x 20% = $68,445; Building : 342,225 x 30% = $102,667.5.
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