A company purchases property that includes land, buildings and equipment for $5.

Question

A company purchases property that includes land, buildings and equipment for $5.2 million. The company pays $182,000 in legal fees, $225,000 in commissions, and $111,000 in appraisal fees. The land is estimated at 24%, the buildings are at 42%, and the equipment at 34% of the property value.

Required:

Determine the total acquisition cost of this “basket purchase.” (Enter your answer in whole dollars and not in millions.)

b. Allocate the total acquisition cost to the individual assets acquired. (Enter your answers in whole dollars and not in millions.

Prepare the journal entry to record the purchase assuming that the company paid 35% of the amounts using cash and signed a note (due in five years) for the remainder. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in whole dollars and not in millions.)

Required:

a.

Determine the total acquisition cost of this “basket purchase.” (Enter your answer in whole dollars and not in millions.)

b. Allocate the total acquisition cost to the individual assets acquired. (Enter your answers in whole dollars and not in millions.

c.

Prepare the journal entry to record the purchase assuming that the company paid 35% of the amounts using cash and signed a note (due in five years) for the remainder. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in whole dollars and not in millions.)

Explanation / Answer

Solution:

(a) total acquisition cost of 'basket purchase'

=$5,200,000 +$182,000 + $225,000 +$111,000

= $5,718,000

(b) cost of land = $5,718,000 x 24% = $1,372,320

Cost of building = $5,718,000 x 42% = $2,401,560

Cost of equipment = $5,718,000 x 34% = $1,944,120

(c) Journal Entry

Date General Journal Debit Credit Land Dr $1,372,320 Building. Dr $2,401,560 Equipment. Dr $1,944,120 To cash $2,001,300 To Note payable $3,716,700

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