Question

# Greer Manufacturing purchases property that includes land, buildings and equipment for \$5.4 million. The company pays...

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: 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)

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