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Red Rock Bakery purchases land, building, and equipment for a single purchase price of $440,000. However, the estimated fair values of the land, building, and equipment are $189,000, $297,000, and $54,000, respectively, for a total estimated fair value of $540,000. Required: Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment.

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Answer and Explanation:

The computation of the amount that recorded in each separate account is shown below:

Asset  Estimated fair value   Allocated %   Purchase price Recorded amount

Land    $189,000                        0.35              $440,000            $154,000

Building   $297,000                   0.55              $440,000            $242,000

Equipment  $54,000                  0.10               $440,000            $44,000

Total        $540,000                    100

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