Question

Greer Manufacturing purchases property that includes land, buildings and equipment for $5.3 million. The company pays $172,000 in legal fees, $221,000 in commissions, and $112,000 in appraisal fees. The land is estimated at 26%, the buildings are at 39%, and the equipment at 35% of the property value.

Required:

1. Determine the total acquisition cost of this "basket purchase".

2. Allocate the total acquisition cost to the individual assets acquired.

3. Prepare the journal entry to record the purchase assuming that the company paid 40% of the amounts using cash and signed a note (due in five years) for the remainder.

Answer 1

1
Purchase price	5300000
Legal fees	172000
Commissions	221000
Appraisal fees	112000
Total acquisition cost	5805000
2
Land	1509300	=5805000*26%
Building	2263950	=5805000*39%
Equipment	2031750	=5805000*35%
3
	Debit	Credit
Land	1509300
Building	2263950
Equipment	2031750
Cash		2322000	=5805000*40%
Notes payable		3483000	=5805000*60%