Question

Empire Hotels recently purchased a parcel of land, a building, and some furnishings for $1,200,000 cash. The land was appraised at $400,000, the building at $1,400,000, and the furnishings at $200,000.

Required:

Journalize the entry to record this lump sum purchase

Answer 1

Journal entry to record Lump sum purchase.

Land Account.................Debit $240,000

Building account............Debit $840,000

Furnishings account......Debit $120,000

To Cash account.................Credit $1,200,000

Working notes

Fair value % of Total Fair value Recognition Value Land 4,00,000 Building 14,00,000 0.20 (400,000 / 2,000,000) 0.70 (1,400,000 / 2,000,000) 0.10 (200,000 / 2,000,000) 2,40,000 (1,200,000 * 0.20) 8,40,000 (1,200,000 * 0.70) 1,20,000 (1,200,000 * 0.10) Furnishings 2,00,000 Total 20,00,000
.