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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.

Answers (1)

Abbie April 12, 2023 в 19:41

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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