Allocating costs on the basis of relative market values
Illinois Company purchased a building and the land on which the building is situated for a total cost of $1,200,000 cash. The land was appraised at $600,000 and the building at $1,000,000.
Required
a. What is the accounting term for this type of acquisition?
b. Determine the amount of the purchase cost to allocate to the land and the amount to allocate to the building.
c. Would Illinois Company recognize a gain on the purchase? Why or why not?
d. Record the purchase in a statements model like the following one.
|
Assets |
= |
Liab. |
+ |
Equity |
Rev. |
Exp. |
= |
Net Inc. |
Cash Flow |
|||||
|
Cash |
+ |
Land |
+ |
Building |