Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real...
Question:
Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $105,000, a building appraised at $210,000, and equipment appraised at $35,000.
Compute the cost that should be allocated to the building.
a. $93,000
b. $186,000
c. $32,500
d. $195,000
e. $97,500
Lup-Sum Asset Purchase:
Various assets are sometimes bought for a single sum. These assets cannot be recorded as one in the fixed assets subsidiary ledger, but rather they should be recorded separately at their allocated purchase price.
Answer and Explanation: 1
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The correct option is d.
The company must allocate the total cost of the basket of assets ($310,000 + $15,000 = $325,000), and use the appraised...
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Acquisition of Property, Plant & Equipment
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Chapter 9 / Lesson 4
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One of the main categories of long-term assets is known as property, plant, and equipment, encompassing the location, buildings, and equipment needed in production. Learn how the acquisition of property, plant, and equipment is recorded and documented through an example of journaling.
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