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22 November, 00:48

Rodriguez Company pays $358,020 for real estate with land, land improvements, and a building. Land is appraised at $202,500; land improvements are appraised at $90,000; and a building is appraised at $157,500. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

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  1. 22 November, 02:49
    0
    The allocation of cost is as follows:

    land is $161,109

    improvement is $71,604

    buildings is $125,307

    The journal entries are:

    Dr Land $161,109

    Dr Improvement $71,604

    Dr buildings $125,307

    Cr Cash $358,020

    Explanation:

    The allocation of the purchase price of $358,020 between the three distinct assets can be done on the proportion of their appraised values as computed below

    Asset allocated value=the asset appraised value/total assets' appraised value*original purchase price

    Land allocated value=$202,500 / ($202500+$90000+$157500) * $358020

    =$161,109.00

    Improvement allocated value=$90,000 / ($202500+$90000+$157500) * $358020

    = $71,604.00

    Buildings allocated value=$157,500 / ($202500+$90000+$157500) * $358020

    =$125,307
  2. 22 November, 04:43
    0
    1. Land $161,109, Land improvement $71,604, Building $125,307

    2. Entries required

    Debit Land $161,109

    Debit Land improvement $71,604

    Debit Building $125,307

    Credit Cash account $358,020

    Being entries to record the purchase of real estate consisting of land, land improvement and a building.

    Explanation:

    The real estate comprises of land, land improvements and a building whose individual appraised costs are known. These individually available cost will be the basis for apportioning the actual cost of the real estate to the individual asset accounts.

    When an asset is purchased, the required adjusting entries are debit to asset and a credit to cash account.

    Total appraised value of the real estate

    = $202,500 + $90,000 + $157,500

    = $450,000

    The actual cost of;

    Land

    = ($202,500/$450,000) * $358,020

    = $161,109

    Land improvements

    = ($90,000/$450,000) * $358,020

    = $71,604

    Building

    = ($157,500/$450,000) * $358,020

    = $125,307
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