05.07.2022 - 06:47

# Ming Yue Company pays $368,250 for real estate plus$19,600 in closing costs. The real estate consists of land appraised at $166,320; land improvements appraised at$55,440; and a building appraised at $174,240. Allocate the total cost among the three pur Question: Ming Yue Company pays {eq}$368,250 {/eq} for real estate plus {eq}$19,600 {/eq} in closing costs. The real estate consists of land appraised at {eq}$166,320 {/eq}; land improvements appraised at {eq}$55,440 {/eq}; and a building appraised at {eq}$174,240 {/eq}. Allocate the total cost among the three purchased assets and prepare the journal entry to record the purchase.

The cost of each asset can be allocated based on their respective appraised values. The total appraised value of all assets is {eq}$396,000 {/eq} ($166,320 + $55,440 +$174,240). To allocate the cost of each asset, first find the ratio of each asset's appraised value to the total value: - Land: $166,320 /$396,000 = 0.42 - Land improvements: $55,440 /$396,000 = 0.14 - Building: $174,240 /$396,000 = 0.44 Then, multiply these ratios by the total cost of the purchase: - Land: 0.42 x $388,850 =$155,067 - Land improvements: 0.14 x $388,850 =$54,519 - Building: 0.44 x $388,850 =$178,264 The journal entry to record the purchase would be: Debit Real Estate (Land) $155,067 Debit Real Estate (Land Improvements)$54,519 Debit Building $178,264 Credit Cash$388,850 This entry records the allocation of the purchase cost to the respective assets and the outflow of cash from the company to pay for the purchase.
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