Question

Greer Manufacturing purchases property that includes land, buildings and equipment for $4.7 million. The company pays $178,000 in legal fees, $220,000 in commissions, and $106,000 in appraisal fees. The land is estimated at 28%, the buildings are at 41%, and the equipment at 31% 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 60% of the amounts using cash and signed a note (due in five years) for the remainder.

Answer 1

a. Total acquisition cost = Purchase price + Legal fee + Commissions + Appraisal fees

= $4,700,000 + $178,000 + $220,000 + $106,000

= $5,204,000

b.

Particulars	Amount
Land ($5,204,000*28%)	$1,457,120
Building ($5,204,000*41%)	$2,133,640
Equipment ($5,204,000*31%)	$1,613,240

c.

Accounts	Debit	Credit
Land	$1,457,120
Building	$2,133,640
Equipment	$1,613,240
Cash ($5,204,000*60%)		$3,122,400
Notes payable ($5,204,000*40%)		$2,081,600