Question

Greer Manufacturing purchases property that includes land, buildings and equipment for $5.4 million. The company pays $181,000 in legal fees, $227,000 in commissions, and $109,000 in appraisal fees. The land is estimated at 28%, the buildings are at 38%, and the equipment at 34% 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 55% of the amounts using cash and signed a note (due in five years) for the remainder.

Answer 1

Answer:
a)
Particulars	Amount (in $)
Purchase Price	$ 5,400,000
Add: Legal fees	$ 181,000
Add: Commissions	$ 227,000
Add: Appraisal fees	$ 109,000
Acquisition cost	$ 5,917,000

b)
	Allocation of Acquisition cost
Land ( $ 5,917,000 x 28% )	$ 1,656,760
Buildings ( $ 5,917,000 x 38% )	$ 2,248,460
Equipment ( $ 5,917,000 x 34% )	$ 2,011,780

Transaction	Account Titles and Explanation	Debit ($)	Credit ($)
1	Land	$ 1,656,760
	Buildings	$ 2,248,460
	Equipment	$ 2,011,780
	Cash            ($ 5,917,000 x 55%)		$ 3,254,350
	Notes payable - Long term            ($ 5,917,000 x 45%)		$ 2,662,650
	(To record the purchase of equipment)