Question

Exercise 4: Lump Sum Purchases

Pinsker Company purchased several assets of a small business that is in the process of liquidating. Pinsker paid $600,000 for these assets, which consist of land, building and inventory. The fair values are given in the table below:

Asset	Fair Value	Proportion	Allocation Calculation	Allocated Cost
Land	$270,000
Building	360,000
Inventory	90,000
Total	$720,000

1. Compute the allocated cost for the assets acquired in the table above (the computation for land is given – compute the rest).

2. Prepare the journal entry to record the purchase of the assets, assuming $200,000 was paid in cash and an interest-bearing note was issued for the balance.

Answer 1

Answer - Part - (1) -

Asset	Fair Value	Proportion	Allocation Calculation	Allocated Cost
Land	$270000	$270000 / $720000 = 37.5%	$600000 * 37.5%	$225000
Building	$360000	$360000 / $720000 = 50%	$600000 * 50%	$300000
Inventory	$90000	$90000 / $720000 = 12.5%	$600000 * 12.5%	$75000
Total	$720000	-	-	$600000

.

Answer - Part - (2) -

Journal Entry

General Journal	Debit ($)	Credit ($)
Land [Refer answer part - (1)] Building [Refer answer part - (1)] Inventory [Refer answer part - (1)] Cash [Given in question] Note Payable [Difference]	225000 300000 75000 - -	- - - 200000 400000