Question

Use the following information for questions 5 and 6.
Byrd Corporation acquired real estate that contained land, building and equipment. The property cost Byrd $850,000. Byrd paid $175,000 and issued a note payable for the remainder of the cost. A property appraisal of the property reported the following values: Land, $95,000; Building, $640,000 and Equipment, $265,000.

5. What value will be recorded for the building?
A. 112,000
B. 432,000
C. 544,000
D. 640,000

6. Using the above information for Byrd Corporation, prepare the journal entry that would be used to record the purchase of the above assets?

Answer 1

Solution 5:

Value to be recorded for building = Total transaction price * Appraised value of building / Combined appraised value

= $850,000 * $640,000 / ($95,000 + $640,000 + $265,000) = $544,000

Hence option C is correct.

Solution 6:

Journal Entries - Byrd Corporation
Date	Particulars	Debit	Credit
1-Jan-17	Land Dr ($850,000 * $95,000 / $1,000,000)	$80,750.00
	Building Dr ($850,000 * $640,000 / $1,000,000)	$544,000.00
	Equipment Dr ($850,000 * $265,000 / $1,000,000)	$225,250.00
	To Cash		$175,000.00
	To Note Payable		$675,000.00
	(To record purchase of assets)