Solar Energy Consulting pays $ 310,000 for a group purchase of land, building, and equipment. At the time of acquisition, the land has a current market value of $ 34,000, the building's current market value is $ 221,000, and the equipment's current market value is $ 85,000. Prepare a schedule allocating the purchase price of $ 310,000 to each of the individual assets purchased based on their relative market values, then journalize the lump-sum purchase of the three assets. The business signs a note payable for the purchase price.
Businesses often purchase several types of fixed assets as a group, or a "basket," for a single lump sum amount. For example, a company might pay one price for land and a building. In this case, it is necessary to identify the cost of each asset, because different accounting rules might apply to each of the different assets in the group. For example, buildings are depreciated, while land is not, so the two assets have to be accounted for separately. The relative-sales-value method is used to identity the individual cost of each asset.
Prepare a schedule allocating the purchase price of $ 310,000 to each of the individual assets purchased based on their relative market values, then journalize the lump-sum purchase of the three assets. The business signs a note payable for the purchase price.
Begin by entering the market value for each asset and computing the total market value. Then compute the percentage of total market value.
Complete the following schedule to allocate the cost of the basket purchase to the land, building, and equipment. The percentages have been entered for you since they were calculated above.
Finally, journalize the lump-sum purchase of the three assets. Remember that a note payable was signed for the purchase price. Think carefully about the accounts used to record this transaction and prepare the journal entry.
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