Question

Budget Banners pays \(200,000 cash for a group purchase of land, building, and equipment. At the time of acquisition, the land has a market value of \)22,000, the building \(187,000, and the equipment \)11,000. Journalize the lump-sum purchase.

Short answer

Answer

The land is assigned the cost of $20,000, the building is $170,000, and the equipment is $10,000.

Step-by-step solution

Meaning of Lump-Sum Purchase

Lump-Sum Purchase refers to when a company purchases many assets like land, building, and equipment by paying only a single price.Lump-sum purchase is also known as a Basket Purchase.

Showing journal entry

Date	Accounts	Debit ($)	Credit ($)
	Land	20,000
	Building	170,000
	Equipment	10,000
	Cash		200,000

working notes:

Calculation of total market value

$$\begin{gathered} \mathrm{Percentage}\mathrm{of}\mathrm{total}\mathrm{value}=\frac{\mathrm{Land}\mathrm{market}\mathrm{value}}{\mathrm{Total}\mathrm{market}\mathrm{value}} \\ =\frac{\$22,000}{\$220,000} \\ =10\% \end{gathered}$$
$$\begin{gathered} \mathrm{Percentage}\mathrm{of}\mathrm{total}\mathrm{value}=\frac{\mathrm{Building}\mathrm{market}\mathrm{value}}{\mathrm{Total}\mathrm{market}\mathrm{value}} \\ =\frac{\$18,7000}{\$220,000} \\ =85\% \end{gathered}$$

$$\begin{gathered} \mathrm{Percentage}\mathrm{of}\mathrm{total}\mathrm{value}=\frac{\mathrm{Equipment}\mathrm{market}\mathrm{value}}{\mathrm{Total}\mathrm{market}\mathrm{value}} \\ =\frac{\$11,000}{\$220,000} \\ =5\% \end{gathered}$$

Calculation of percentage of total value

Calculation showing the assigned cost to each asset

Asset	Market value
Land	$22,000
Building	187,000
Equipment	11,000
Total	$220,000	100% $200,000