Question

Greer Manufacturing purchases property that includes land, buildings and equipment for $5.4 million. The company pays $173,000 in legal fees, $222,000 in commissions, and $104,000 in appraisal fees. The land is estimated at 22%, the buildings are at 44%, 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 40% of the amounts using cash and signed a note (due in five years) for the remainder.

Answer 1

a) Total acquisition cost

Original Cost	5,400,000
Legal fees	173,000
Commission	222,000
Appraisal fees	104,000
Total acquisition cost	5,899,000

b) Allocated cost

Land (5,899,000*22%)	1,297,780
Building (5,899,000*44%)	2,595,560
Equipment(5,899,000*34%)	2,005,660
Total	5,899,000

c) Journal entry

Date	account and explanation	debit	credit
	Land	1,297,780
	Building	2,595,560
	Equipment	2,005,660
	Cash		2,359,600
	Notes payable		3,539,400
	(To record purchase)

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