Question

A company paid $326,000 for property that included land, land improvements, and a building. The land was appraised at $175,000, the land improvements were appraised at $70,000, and the building was appraised at $105,000. What is the allocation of property costs to the three assets purchased and what is the journal entry to record this transaction?a) Land, $150,000. Land Improvements, S60,000; Building, $90,000 b) Land, $163,000; Land Improvements, $65,200; Building, $97,800 c) Land, $150,000; Land Improvements, $61,600; Building, $92,400 d) Land, $159,000; Land Improvements, $65,200; Building, $95,400 e) Land, $175,000; Land Improvements, $70,000; Building, $105,000

Answer 1

Answer: b) Land, $163,000; Land Improvements, $65,200; Building, $97,800

Explanation:

First add up their appraised values;

= 175,000 + 70,000 + 105,000

= $350,000

Allocate costs based on proportion of total appraised value;

Land

= 175,000/350,000 * 326,000

= $163,000

Land Improvements

= 70,000/350,000 * 326,000

= $65,200

Building

= 105,000/350,000 * 326,000

= $97,800

Journal Entry

Details                                                                   Debit                     Credit

Land                                                                    $163,000

Land Improvements                                          $65,200

Building                                                               $97,800

Cash                                                                                                   $326,000