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Carver Inc. purchased a building and the land on which the building is situated for a total cost of $935,000 cash. The land was appraised at $268,812 and the building at $806,438.

Required

a. Determine the amount of the purchase cost to allocate to the land and the amount to allocate to the building.
b. Would the company recognize a gain on the purchase?
c. Record the purchase in a statements model like the following one.
d. Record the purchase in general journal format.

Respuesta :

Shakiru

Answer:A. Land $233,750

. Building $701,250

B. No, gain will not be recognize on purchase.

C. Carver Inc purchased land at a cost of $233,750 and the building on which the land is built at $701,250.

D. Carver Inc journal $. $

Date

Land Dr 233,750

Building Dr 701,250

Cash account Cr. 935,000

Narration. Payment land and building purchased at date.

Explanation:

A. Cost of land

= 268,812+806,438

° 1,075,250

= 268,812/1075250*935,000

= $233,750

Cost of building

806,438/1075250*935000

= 701,250

B. Gain will not recognize on the purchase until at the end of the accounting year however the company has to use the fair value method of recognising assets to be able to recognise gain or loss there in, if it uses the cost method gain or loss cannot be recognize into the books and this is on the basis that it's treated as plant and property.

anthougo

a. The amount of the purchase cost that should be allocated to the land and building are as follows:

Land = $233,750

Building = $701,250

b. The company would not recognize a gain on the purchase but uses the appraised values to determine the costs to be allocated to the two assets.

c. Statements model:

  Balance Sheet                           Income   Statement                Statement of

                                                                                                        Cash Flows

Assets = Liabilities + Equity    Revenue - Expenses = Net Income

Cash            Land       Building  

($935,000) $233,750  $701,250  $0  -      $0          =       $0     ($935,000) IA

d. General Journal

Account Titles                   Debit       Credit

Land                             $233,750

Building                        $701,250

Cash                                              $935,000

Data and Calculations:

Purchase cost of building and land = $935,000

Appraised value of land = $268,812

Appraised value of building = $806,438

Total appraised value of land and building = $1,075,250 ($268,812 + $806,438)

Purchase cost allocated to land = $233,750 ($268,812/$1,075,250 x $935,000) or 25%

Purchased cost allocated to building = $701,250 ($806,438$1,075,250 x $935,000) or 75%

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