Rodriguez Company pays $342,225 for real estate with land, land improvements, and a building. Land is appraised at $260,000; land improvements are appraised at $104,000; and a building is appraised at $156,000. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

Answer and Explanation:

a. The allocation of the total cost among the three assets is shown below:

                                       (a)                          (b)                      (a × b)

     Appraise value      Total appraised      Total cost of      Apportioned

                               value                                                          cost

                               Percentage              acquisition

Land  $260,000            50%                 $342,225                $171,112.50

Land

improvemnts $104,000  20%                $342,225               $68,445

Building $156,000          30%                $342,225               $102,667.50

Total      $520,000

b. The journal entry to record the purchase is given below:

Land   $171,112.50

Land improvements $68,445

Building $102,667.50

        To Cash $342,225

(To record the purchase)

Here the asset is debited as it increased the assets and cash is credited as it decreased the assets