Question

Patty’s Auto Body bought a shop from an existing business on June 15 with cash. The...

Patty’s Auto Body bought a shop from an existing business on June 15 with cash. The purchase
includes the land, building and all of the equipment inside. The total price of the purchase was
$1,500,000. The fair market value for the land was $800,000. The fair market value for the equipment
was $400,000. The fair market value for the building was $600,000.
a. Calculate the cost allocation for this basket purchase based on the fair market values given.

b. Record the journal entry for this purchase.

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Answer #1
a.) Land           800,000
Building           600,000
Equipment           400,000
Total Fair market Value $ 1,800,000
Cost allocation
Land $ 666,667 =1500000*800000/1800000
Building $ 500,000 =1500000*600000/1800000
Equipment $ 333,333 =1500000*400000/1800000
b.) Date General Journal Debit $ Credit $
June .15 Land 666,667
Building 500,000
Equipment 333,333
Cash 1,500,000
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