Question

Recording a Lump-Sum Acquisition

Freeman Company purchased a tract of land on which were located a warehouse and an office building. The cash purchase price was $140,000 plus $10,000 in fees connected with the purchase. The following information relates to the property.

	Tax Assessment	Seller’s Book Value	Original Cost
Land	$20,000	$10,000	$10,000
Warehouse	40,000	20,000	60,000
Building	60,000	50,000	80,000

Prepare the journal entry to record this purchase.

Account Name	Dr.	Cr.
Land
Warehouse
Building
Cash

Answer 1

Answer:
Total Acquisition Cost      = Purchase price + Fees      =   $ 140,000 + $ 10,000      = $ 150,000
Allocated based on basis of Tax Assessment     = 20,000 : 40,000 : 60,000     =   1 : 2 : 3
Accounts titles and Explanation	Debit ($)	Credit ($)
Land ( $ 150,000 x 1 / 6)	$ 25,000
Warehouse ( $ 150,000 x 2 / 6)	$ 50,000
Building ( $ 150,000 x 3 / 6)	$ 75,000
Cash		$ 150,000
(To record the purchase )