Question

rodriguez company pays $373,815 for real estate with land, land improvements, and a building. land is appraised at $193,500; land improvements are appraised at $64,500; and the building is appraised at $172,000. 1. allocate the total cost among the three assets. 2. prepare the journal entry to record the purchase.

Answer 1

According to the given information, The total among the three assets of Rodriguez company is $430,000.      

                               The market value of the property

Land                                                       $193,500

Land Improvement                               $64,500

Building                                                  $172,000

Total                                                       $430,000

The purchase price of property = $373,815

1.                             Land               Land improvement              Building

Appraised    

value (AV)           - $193,500                   $64,500                    $172,000

% of total AV (a) -  0.45                              0.15                             0.4

Working              - $\frac{193,500}{430,000}$                            $\frac{64,500}{430,000}$                          $\frac{172,000}{430,000}$

Total cost of

acquisition (b)    -$430,000                   $430,000                   $430,000

Apportioned

cost (a) × (b)       -$193,500                     $64,500                     $172,000    

2.                                                  Journal Entry

Particulars                               Amount (Dr.)                 Amount (Cr.)

Land                                         $193,500  

Land Improvements              $64,500  

Building                                   $172,000  

Bank                                                                                 $373,815

(Purchased real estate.)

• The value of a property as determined by a professional appraiser may differ from the market value or asking price for the property.
• Lenders use appraised values to determine loan-to-value ratios and other aspects of mortgage underwriting.

Learn more about Appraised values, here

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