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Chapter 9: Q9-1TI (page 494)

Budget Banners pays \(200,000 cash for a group purchase of land, building, and equipment. At the time of acquisition, the land has a market value of \)22,000, the building \(187,000, and the equipment \)11,000. Journalize the lump-sum purchase.

Short Answer

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Answer

The land is assigned the cost of $20,000, the building is $170,000, and the equipment is $10,000.

Step by step solution

01

Meaning of Lump-Sum Purchase

Lump-Sum Purchase refers to when a company purchases many assets like land, building, and equipment by paying only a single price.Lump-sum purchase is also known as a Basket Purchase.

02

Showing journal entry

Date

Accounts

Debit ($)

Credit ($)

Land

20,000


Building

170,000

Equipment

10,000

Cash

200,000


working notes:

Calculation of total market value

Percentageoftotalvalue=LandmarketvalueTotalmarketvalue=$22,000$220,000=10%
Percentageoftotalvalue=BuildingmarketvalueTotalmarketvalue=$18,7000$220,000=85%

Percentageoftotalvalue=EquipmentmarketvalueTotalmarketvalue=$11,000$220,000=5%

Calculation of percentage of total value

Calculation showing the assigned cost to each asset

Asset

Market value


Land

$22,000


Building

187,000


Equipment

11,000


Total

$220,000

100% $200,000

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Most popular questions from this chapter

Question: Accounting for natural resources Conseco Oil, Inc. has an account titled Oil and Gas Properties. Conseco paid \(6,600,000 for oil reserves holding an estimated 1,000,000 barrels of oil. Assume the company paid \)570,000 for additional geological tests of the property and $450,000 to prepare for drilling. During the first year, Conseco removed and sold 72,000 barrels of oil. Record all of Conseco’s transactions, including depletion for the first year.

Computing first-year depreciation and book value

On January 1, 2018, Air Canadians purchased a used airplane for \(37,000,000. Air Canadians expects the plane to remain useful for five years (4,000,000 miles) and to have a residual value of \)5,000,000. The company expects the plane to be flown 1,400,000 miles during the first year.

Requirements

1. Compute Air Canadians’s first-year depreciation expense on the plane using the following methods:

a. Straight-line

b. Units-of-production

c. Double-declining-balance

2. Show the airplane’s book value at the end of the first year for all three methods.

Exchanging plant assets White Corporation purchased equipment for \(22,000. White recorded total depreciation of \)19,000 on the equipment. On January 1, 2018, White traded in the equipment for new equipment, paying \(23,200 cash. The fair market value of the new equipment is \)25,100. Journalize White Corporation’s exchange of equipment. Assume the exchange had commercial substance.

Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana. Core purchased goodwill as part of the acquisition of Surety Wireless Company,which had the following figures:

Book value of assets \( 700,000

Market value of assets 1,000,000

Market value of liabilities 510,000

Requirements

1. Journalize the entry to record Core’s purchase of Surety Wireless for \)280,000 cashplus a $420,000 note payable.

2. What special asset does Core’s acquisition of Surety Wireless identify? How shouldCore Telecom account for this asset after acquiring Surety Wireless? Explain in detail

Determining the cost of assets Lawson Furniture purchased land, paying \(65,000 cash and signing a \)250,000 note payable. In addition, Lawson paid delinquent property tax of \(5,000, title insurance costing \)4,000, and \(9,000 to level the land and remove an unwanted building. The company then constructed an office building at a cost of \)400,000. It also paid \(54,000 for a fence around the property, \)12,000 for a sign near the entrance, and $8,000 for special lighting of the grounds. Requirements

  1. Determine the cost of land, land improvements, and building.
  2. Which of these assets will Lawson depreciate?
See all solutions

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