Allocate costs in a basket purchase (LO7-1) Red Rock Bakery purchases land, building, and equipment for a single purchase price of $460,000. However, the estimated fair values of the land, building, and equipment are $168,000, $308,000, and $84,000, respectively, for a total estimated fair value of $560,000.
Required:
Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment.

Red Rock Bakery

The amounts Red Rock should record in the separate accounts for the land, the building, and the equipment are:

Land = $121,800

Building = $223,300

Equipment = $60,900

Explanation:

a) Data and Calculations:

Single purchase price for land, building, and equipment = $460,000

Estimated fair value of Land = $168,000

Estimated fair value of Building = $308,000

Estimated fair value of Equipment = $84,000

Total estimated fair values = $560,000

Amount to be recorded for each:

Land = $168,000/$560,000 * $406,000 = $121,800

Building = $308,000/$560,000 * $406,000 = $223,300

Equipment = $84,000/$560,000 * $406,000 = $60,900

Total apportioned amount = $406,000

b) This apportionment of value takes into consideration the proportion of each asset's fair value to the purchase price.  For example, Land's proportion is equal to 30% ($168,000/$560,000), Building's = 55%, and Equipment's = 15%.

the answer is a.

by: nicholas dooley

answernaturalistic observation;