Rodriguez Company pays $321,165 for real estate with land, land improvements, and a building. Land is appraised at $180,000; land improvements are appraised at $67,500; and a building is appraised at $202,500. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2021-06-17T02:49:12+02:00

Answer:

1. Land $128,466

Improvement $48,175

Building $144,524

2.Dr Land $128,466

Dr Improvement $48,175

Dr buildings $144,524

Cr Cash $321,165

Explanation:

1. Calculation to Allocate the total cost among the three assets

Using this formula

Asset allocated value=Asset appraised value/total assets' appraised value*original purchase price

Land allocated value=$180,000/($180,000+67500+$202,500)*$321,165

Land allocated value=$180,000/$45000* $321,165

Land allocated value=$128,466

Improvement allocated value=$67,500/($180,000+67500+$202,500)*$321,165

Improvement allocated value=$67,500/$450,000*$321,165

Improvement allocated value=$48,175

Buildings allocated value=$202,500/($180,000+67500+$202,500)*$321,165

Buildings allocated value=$202,500/$450,000*$321,165

Buildings allocated value=$144,524

Therefore Allocate the total cost among the three assets will be:

Land $128,466

Improvement $48,175

Building $144,524

2. Preparation of the journal entry to record the purchase

Dr Land $128,466

Dr Improvement $48,175

Dr buildings $144,524

Cr Cash $321,165

(To record purchase)