Question

Rodriguez Company pays $384,345 for real estate with land, land improvements, and a building. Land is appraised at $225,000; land improvements are appraised at $100,000; and a building is appraised at $175,000.

Required:
1. Allocate the total cost among the three assets.
2. Prepare the journal entry to record the purchase.

Answer 1

Total appraisal cost = 225,000+100,000+175,000 = 500,000

Land (225,000/500,000)*384,345	172,955.25
Land improvements (100,000/500,000)*384,345	76,869
Building (175,000/500,000)*384,345	134,520.75

.

Journal entry

Land	172,955.25
Land improvements	76,869
Building	134,520.75
Cash		500,000