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29 October, 16:37

Rodriguez Company pays $375,280 for real estate plus $20,100 in closing costs. The real estate consists of land appraised at $157,040; land improvements appraised at $58,890; and a building appraised at $176,670. 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. 29 October, 17:15
    0
    Land = $158,152

    Land improvements = $59,307

    Building = $177,921

    Total = $395,380

    Explanation:

    Price paid = 375,280 + 20,100 = 395,380

    To Allocate we use the market values of the assets and make them their standalone prices

    Land = 157,040

    improvements = 58,890

    Building = 176,670

    Total = 392,600

    then we use the standalone prices as ratios

    Land = 395,380 * 157,040/392,600 = 158,152

    Improvements = 395,380 * 58,890/392,600 = 59,307

    Building = 395,380 * 176,670/392,600 = 177,921
  2. 29 October, 19:39
    0
    Land, Improvements and Building are assigned $158,152, $59,307, and $177,921

    Entries required are;

    Debit Land account $158,152

    Debit Improvements $59,307

    Debit Building accounts $177,921

    Credit Cash account $395,380

    Explanation:

    The total cost of an asset is includes the cost of the item itself and other associated cost incurred in getting the asset to a place and state where the asset becomes available for use.

    The actual cost incurred for the asset will be apportioned to the individual asset in proportion to their appraised values.

    Total cost of asset = $375,280 + $20,100

    = $395,380

    Total appraised cost

    = $157,040 + $58,890 + $176,670

    = $392,600

    Land cost

    = ($157,040/$392,600) * $395,380

    = $158,152

    Improvements

    = ($58,890/$392,600) * $395,380

    = $59,307

    Building

    = ($176,670/$392,600) * $395,380

    = $177,921

    Entries required

    Debit Land account $158,152

    Debit Improvements $59,307

    Debit Building accounts $177,921

    Credit Cash account $395,380

    Being entries to recognize the cost of the real estate.
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