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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

Expert verified

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

Computing depreciation鈥攖hree methods Crispy Fried Chicken bought equipment on January 2, 2018, for \(33,000. The equipment was expected to remain in service for four years and to operate for 6,750 hours. At the end of the equipment鈥檚 useful life, Crispy鈥檚 estimates that its residual value will be \)6,000. The equipment operated for 675 hours the first year, 2,025 hours the second year, 2,700 hours the third year, and 1,350 hours the fourth year.

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A Recording lump-sum asset purchases, depreciation, and disposals Ellie Johnson Associates surveys American eating habits. The company鈥檚 accounts include Land, Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated Depreciation account for each depreciable asset. During 2018, Ellie Johnson Associates completed the following transactions:

Jan. 1 Purchased office equipment, \(113,000. Paid \)80,000 cash and financed the remainder with a note payable.

Apr. 1 Acquired land and communication equipment in a lump-sum purchase. Total cost was \(310,000 paid in cash. An independent appraisal valued the land at \)244,125 and the communication equipment at \(81,375.

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Dec. 31 Recorded depreciation as follows:

Communication equipment is depreciated by the straight-line method over a five-year life with zero residual value.

Office equipment is depreciated using the double-declining-balance method over five years with a \)1,000 residual value.

Record the transactions in the journal of Ellie Johnson Associate

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