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

Question

A company purchases property that includes land, buildings and equipment for $5.5 million. The company pays $180,000 in legal fees, $220,000 in commissions, and $100,000 in appraisal fees. The land is estimated at 25%, the buildings are at 40%, and the equipment at 35% of the property value. Prepare the journal entry that is required to record the purchase assuming that the company paid 50% of the amounts using cash and signed a note for the remainder. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Enter your answer in dollars and not in millions.) Record the purchase of land, buildings and equipment assuming that the company paid 50% of the amounts using cash and signed a note for the remainder.

Explanation / Answer

Acquisition Cost of Property
Cost of Property = $5,500,000
Add: Legal Fees = $180,000
Add: Commissions = $220,000
Add: Appraisal Fees= $100,000
Total Acquisition cost = $6,000,000
Land (25%)= $1,500,000
Building (40%) = $2,400,000
Equipment( 35%) = $2,100,000
Total property value = $6,000,000

Journal Entry
Land (25%) $1,500,000
Building (40%) $2,400,000
Equipment( 35%) $2,100,000
    Cash $3,000,000
   Notes Payable $3,000,000

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