Question

The following information relates to Questions below: Brian’s Sporting Goods obtained a building, land, and machinery in a lump-sum purchase (i.e., basket purchase) for $400,000. The appraised value of the land is $200,000, the appraised value of the building is $180,000, and the appraised value of the machinery is $120,000.

At what amount should Brian’s Sporting Goods initially record the land on its books? $160,000

At what amount should Brian’s Sporting Goods initially record the building on its books? $144,000

At what amount should Brian’s Sporting Goods initially record the machinery on its books? $96,000

Please EXPLAIN step by step

Answer 1

As the building, land and machinery are purchased for lump sum amount of $400,000, we need to allocate this lump sum amount to land, building and machinery in the ratio of their appraised value respectively.

The appraised value of each asset is given in the question.

Appraised Value of Land = $200,000

Appraised Value of Building = $180,000

Appraised Value of Machinery = $120,000

Total Appraise Value of all assets = $200,000+$180,000+$120,000 = $500,000

1) Amount to be recorded in books for Land

= Lump Sum Amount*(Appraised Value of Land/Total Appraised Value of all assets)

= $400,000*($200,000/$500,000) = $160,000

Therefore Brian’s Sporting Goods should initially record the land on its books for $160,000.

2) Amount to be recorded in books for Building

= Lump Sum Amount*(Appraised Value of Building/Total Appraised Value of all assets)

= $400,000*($180,000/$500,000) = $144,000

Therefore Brian’s Sporting Goods should initially record the building on its books for $144,000.

3) Amount to be recorded in books for Machinery

= Lump Sum Amount*(Appraised Value of Machinery/Total Appraised Value of all assets)

= $400,000*($120,000/$500,000) = $96,000

Therefore Brian’s Sporting Goods should initially record the machinery on its books for $96,000.