Question

E9-2A. Allocation of Package Purchase Price Tamarack Company purchased a plant from one of its suppliers. The $1,000,000 purchase price included the land, a building, and factory machinery. Tamarack also paid $6,000 in legal fees to negotiate the purchase of the plant. An appraisal showed the following values for the items purchased:

Property    Assessed Value

Land......…………………......……………………...……………......…...……......……..$126,000

Building...……………...………...…………………………...……………………………...456,000

Machinery......…………......………………………………………………......…………    318,000

Total...…...………............……...………………………...………...…………………...…$900,000

Using the assessed value as a guide, allocate the total purchase price of the plant to the land, building, and machinery accounts in Tamarack company's records.

Answer 1

Calculation of Total purchase price:

Allocation of the total purchase price to the land, building, and machinery accounts in Tamarack Company’s record:

Thus, the total purchase price allocated to land, building, and machinery accounts is $140,840, $509,707 and $355,453 respectively.