Question

Rodriguez Company pays $347,490 for real estate with land, land improvements, and a building. Land is appraised at $255,000; land improvements are appraised at $51,000; and the building is appraised at $204,000.

1. Allocate the total cost among the three assets.
2. Prepare the journal entry to record the purchase.

Answer 1

To allocate the cost, we can use the appraised values as a percentage of the total appraised value. The land is appraised at $255,000, which is approximately 73.5% of the total appraised value. The land improvements are appraised at $51,000, which is approximately 14.7% of the total appraised value. And the building is appraised at $204,000, which is approximately 11.8% of the total appraised value.

Step-by-step explanation:

The total cost of $347,490 needs to be allocated among the three assets: land, land improvements, and the building. To allocate the cost, we can use the appraised values as a percentage of the total appraised value. The land is appraised at $255,000, which is approximately 73.5% of the total appraised value ($255,000 / $347,490). The land improvements are appraised at $51,000, which is approximately 14.7% of the total appraised value ($51,000 / $347,490). And the building is appraised at $204,000, which is approximately 11.8% of the total appraised value ($204,000 / $347,490).

To record the purchase in the journal, we will debit each asset account with their allocated cost. The land account will be debited with $255,000, the land improvements account will be debited with $51,000, and the building account will be debited with $204,000. The cash or accounts payable account will be credited with $347,490, representing the total cost of the purchase.