Rodriguez Company pays $358,020 for real estate with land, land improvements, and a building. Land is appraised at $202,500; land improvements are appraised at $90,000; and a building is appraised at $157,500. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.

1. Land $161,109, Land improvement $71,604, Building $125,307

2. Entries required

Debit  Land $161,109

Debit Land improvement $71,604

Debit Building $125,307

Credit Cash account $358,020

Being entries to record the purchase of real estate consisting of land, land improvement and a building.

Explanation:

The real estate comprises of land, land improvements and a building whose individual appraised costs are known. These individually available cost will be the basis for apportioning the actual cost of the real estate to the individual asset accounts.

When an asset is purchased, the required adjusting entries are debit to asset and a credit to cash account.

Total appraised value of the real estate

= $202,500 + $90,000 + $157,500

= $450,000

The actual cost of;

Land

= ($202,500/$450,000) * $358,020

= $161,109  

Land improvements

= ($90,000/$450,000) * $358,020

= $71,604  

Building

= ($157,500/$450,000) * $358,020

= $125,307