Q18E Making a lump-sum purchase of as... [FREE SOLUTION]

Chapter 9: Q18E (page 529)

Making a lump-sum purchase of assets Maplewood Properties bought three lots in a subdivision for a lump-sum price. An independent appraiser valued the lots as follows:
Lot
Appraised Value
1
$144,000
2
96,000
3
240,000
Maplewood paid $355,000 in cash. Record the purchase in the journal, identifying each lot鈥檚 cost in a separate Land account. Round decimals to two places, and use the computed percentages throughout.

Short Answer

Expert verified

Cash payment is allotted in ratio 0.3:0.2:0.5 respectively to lot 1:2:3.

Step by step solution

Meaning of Lump-Sum

A lump-sum purchase involves paying a single price for multiple assets. The cost of each asset purchased must be identified based on the relative-market-value method.

Journal entry for lump-sum purchase

Date	Particulars	Debit ($)	Credit ($)
	Land Lot 1	106,500
	Land Lot 2	71,000
	Land Lot 3	177,500
	Cash		355,000
	(Being cash paid for 3 Lots)

Working note:

Lot	Appraisal Fair Value
1	$ 144,000
2	$ 96,000
3	$ 240,000
Total Appraisal Fair Value	$ 480,000

Lot 1:

$\begin{matrix} Appraisal ratio - Lot 1 = \frac{Appraised value of lot 1}{Total appraised value} \\ = \frac{$ 144, 000}{$ 480, 000} \\ = 0.3 \end{matrix}$

Lot 2:

$\begin{matrix} Appraisal ratio - Lot 2 = \frac{Appraised value of lot 1}{Total appraised value} \\ = \frac{$ 96, 000}{$ 480, 000} \\ = 0.2 \end{matrix}$

Lot 3:

$\begin{matrix} Appraisal ratio - Lot 3 = \frac{Appraised value of lot 3}{Total appraised value} \\ = \frac{$ 240, 000}{$ 480, 000} \\ = 0.5 \end{matrix}$

Allocation of cost to each lot:

Lot	Cash paid	X	Ratio	=	Allocated cost ($)
1	$355,000	X	0.3	=	$106,500
2	$355,000	X	0.2	=	71,000
3	$355,000	X	0.5	=	177,500
					$355,000

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

a	Purchase price of three acres of land	$86,000
b	Delinquent real estate taxes on the land to be paid by safe parking	6,300
c	Additional dirt and earth removing	8,400
d	Title insurance and the land acquisition	3,400
e	Fence around the boundary of the property	9,600
f	Building permit for building	900
g	Architect鈥檚 fee for design of building	20,100
h	Signs near the front of property	9,000
i	Material used to construct the building	217,000
J	Labor to construct the building	172,000
k	Interest cost on construction loan for the building	9,500
l	Parking lots on the property	29,400
m	Lights for parking lots	11,600
n	Salary of construction supervisor(80% to building; 20% to parking lot and concrete walks)	80,000
o	Furniture	11,700
p	Transportation of furniture from seller to the building	1,900
q	Additional fencing	6,900

Asset	Acquisition Date	Cost	Estimated Life	Estimated Residual value	Depreciation Method	Monthly Depreciation Expense
Canoes	Nov. 3, 2018	\(4,800	4 Years	\) 0	SL	$100
Land	Dec 1, 2018	85,000			n/a
Building	Dec 1, 2018	35,000	5 Years	5,000	SL	500
Canoes	Dec 2, 2018	7,200	4 Years	0	SL	150
Computer	Mar. 2, 2019	3,600	3 Years	300	DDB
Office Furniture	MAR. 3, 2019	3,000	5 Years	600	SL

91影视

Short Answer

Step by step solution

Meaning of Lump-Sum

Journal entry for lump-sum purchase

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Project Planning & Management

Business Development

Financial Performance

Corporate Finance

Strategic Direction

Influences On Business

Study anywhere. Anytime. Across all devices.