A Company Purchases Property That Includes Land,buildings and Equipment for $5.5

question 155

Essay

A company purchases property that includes land,buildings and equipment for $5.5 million.The company pays $180,000 in legal fees,$220,000 in commissions,and $100,000 in appraisal fees.The land is estimated at 25%,the buildings are at 40%,and the equipment at 35% of the property value.
Required:
Part a.Determine the total acquisition cost of this "basket purchase."
Part b.Allocate the total acquisition cost to the individual assets acquired.
Part c.Prepare the journal entry to record the purchase assuming that the company paid 50% of the amounts using cash and signed a note (due in five years)for the remainder.

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Definitions:

Bondholders

Individuals or entities that hold debt securities issued by corporations or governments, entitled to receive interest payments and the return of principal.

Stockholders

Individuals or entities that own shares in a corporation, giving them partial ownership of the company.

Optimistic

Having a positive outlook or expectation about future outcomes or the general situation.

Future Earnings

The projected income a person or company is expected to generate in the future.