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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

Accounting for goodwill

Decca Publishing paid \(230,000 to acquire Thrifty Nickel, a weekly advertising paper. At the time of the acquisition, Thrifty Nickel’s balance sheet reported total assets of \)130,000 and liabilities of \(70,000. The fair market value of Thrifty Nickel’s assets was \)100,000. The fair market value of Thrifty Nickel’s liabilities was $70,000.

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Dylan worked for a propane gas distributor as an accounting clerk in a small Midwestern

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