Question

Rodriguez Company pays $350,000 for real estate plus $18,550 in closing costs. The real estate consists of land appraised at $216,000; land improvements appraised at $81,000; and a building appraised at $243,000.

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

Answer 1

1. Allocation of the total cost among the three purchased assets.

	Appraised Value	Percentage Proportion	Total cost of Acquisition	Apportioned Cost of Acquisition
Land	216,000	40%	368550	147,420
Land Improvements	81,000	15%	368550	55,283
Building	243,000	45%	368550	165,848
	540,000	100%		368,550

*Total cost of Acquisition = $350,000 + 18,550 = $368,550

2. Journal entry to record the purchase.

Accounts Tittles and Explanations	Debit ($)	Credit ($)
Land A/c	147,420
Land Improvements A/c	55,283
Building A/c	165,848
To Cash A/c		368,550
[Entry to record the purchase.]