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9 February, 19:36

Rodriguez Company pays $375,000 for real estate plus $19,875 in closing costs. The real estate consists of land appraised at $189,000; land improvements appraised at $63,000; and a building appraised at $168,000. 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. 9 February, 19:58
    0
    1. Land cost $177,693.75

    Land improvement cost $59,231.25

    Building cost $157,950.00

    2. Debit Land $177,693.75

    Debit Land improvements $59,231.25

    Credit Building $157,950.00

    Being entry to record the cost of real estate purchased.

    Explanation:

    Total cost of the real estate purchase will include the closing cost which is a key cost element. The allocated costs among the 3 purchased assets will be done proportionally to the appraised cost of each asset.

    Total appraised value of the real estate purchased

    = $189,000 + $63,000 + $168,000

    = $420,000

    Total cost of real estate based on payment

    = $375,000 + $19,875

    = $394,875

    Cost allocated to;

    Land improvements = ($63,000/$420,000) * $394,875

    = $59,231.25

    Land = ($189,000/$420,000) * $394,875

    = $177,693.75

    Building = ($168,000/$420,000) * $394,875

    = $157,950.00

    The entry required would be debits to the individual assets account and a lump sum credit to cash for the transaction.
  2. 9 February, 21:49
    0
    A. Land 177,693.75

    Land improvements 59,231.25

    Building157,950.00

    B.

    Journal Entry

    Dr Land+/-177,693.75

    Dr Land improvements+/-59,231.25

    Dr Building+/-157,950.00

    Cr Cash+/-394,875.00

    Explanation:

    Land appraised at $189,000

    Land improvements appraised at $63,000 Building appraised at $168,000

    TOTAL 420,000

    % of Total * Total cost of Acquisition

    Appraisal

    volume

    45% * 394,875=177,693.75Apportioned cost

    15% * 394,875=59,231.25 Apportioned cost

    40%*394,875=157,950.00 Apportioned cost

    Total 100% = 394,875.00

    Purchase price 375,000 + Closing cost 19,875 = Total cost of acquisition 394,875

    For percentage use total cost divided by appraised value 189,000 / 420,000 = 45%

    For percentage use total cost divided by appraised value 63,000 / 420,000 = 15%

    For percentage use total cost divided by appraised value 168,000 / 420,000 = 40%

    Allocation of total cost: Land (394,875x 0.45) = 177,693.75.00 + land improvement (394,875 x 0.15) = 59,231.25 + building (394,875 x 0.4) = 157,950.00

    177,693.75+59,231.25+157,950.00 = Total 394,875.00

    B. Journal entry to record the purchase

    Dr Land+/-177,693.75

    Dr Land improvements+/-59,231.25

    Dr Building+/-157,950.00

    Cr Cash+/-394,875.00
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Home » Business » Rodriguez Company pays $375,000 for real estate plus $19,875 in closing costs. The real estate consists of land appraised at $189,000; land improvements appraised at $63,000; and a building appraised at $168,000. Required: 1.
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