Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 6, Problem 6.7E
Exercise 6.7
LO 1
Basket purchase allocation Dorsey Co. has expanded its operations by purchasing a parcel of land with a building on it from Bibb Co. for $255,000. The appraised value of the land is $60,000, and the appraised value of the building is $240,000.
Required:
- Assuming that the building is to be used in Dorsey Co.’s business activities, what cost should be recorded for the land?
- Explain why, for income tax purposes, management of Dorsey Co. would want as little of the purchase price as possible allocated to land.
- Explain why Dorsey Co. allocated the cost of assets acquired based on appraised values at the purchase date rather than on the original cost of the land and building to Bibb Co.
- Assuming that the building is demolished at a cost of $20,000 so that the land can be used for employee parking, what cost should Dorsey Co. record for the land?
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Exercise 7-3A Allocate costs in a basket purchase (LO7-1)
Red Rock Bakery purchases land, building, and equipment for a single purchase price of $500,000. However, the estimated fair values
of the land, building, and equipment are $210,000, $330,000, and $60,000, respectively, for a total estimated fair value of $600,000.
Required:
Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment.
X Answer is complete but not entirely correct.
Estimated Fair
Allocation
Amount of Basket
Recorded
Value
Percentage
Purchase
Amount
Land
$
210,000
25 X %
$
500,000
$
125,000
Building
330,000
65 X %
500,000
325,000 X
Equipment
60,000
15
%
500,000
75,000
Total
$
600,000
$
525,000
Exercise 7-3A Allocate costs in a basket purchase (LO7-1)
Red Rock Bakery purchases land, building, and equipment for a single purchase price of $560,000. However, the estimated fair value-
of the land, building, and equipment are $231,000, $363,000, and $66,000, respectively, for a total estimated fair value of $660,000.
Required:
Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment.
Allocation
Percentage
Recorded
Amount
Amount of Basket
Estimated Fair Value
Purchase
Land
%
Building
Equipment
%
Total
2$
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QUESTION 9
The following information was taken from a company's bank reconciliation at the end of the year:
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What is the correct cash balance that should be reported in the company's balance sheet at the end of the year?
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O $5,464
O $9,790
O $8,190
O None of the above
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Chapter 6 Solutions
Accounting: What the Numbers Mean
Ch. 6 - Prob. 6.1MECh. 6 - Prob. 6.2MECh. 6 - Mini-Exercise 6.3 LO 3 Depreciation calculation...Ch. 6 - Prob. 6.4MECh. 6 - Mini-Exercise 6.5 LO 9 Goodwill Backstreets Co....Ch. 6 - Prob. 6.6MECh. 6 - Exercise 6.7 LO 1 Basket purchase allocation...Ch. 6 - Prob. 6.8ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10E
Ch. 6 - Exercise 6.11 LO 3 Effect of depreciation on ROI...Ch. 6 - Exercise 6.12 LO 3 Financial statement effects of...Ch. 6 - Exercise 6.13 LO 3 Depreciation calculation...Ch. 6 - Exercise 6.14 LO 3 Depreciation calculation...Ch. 6 - Prob. 6.15ECh. 6 - Prob. 6.16ECh. 6 - Prob. 6.17ECh. 6 - Exercise 6.18 LO 9 Goodwill-effect on ROI and...Ch. 6 - Exercise 6.19 LO 6, 8, 9 Transaction...Ch. 6 - Exercise 6.20 LO 3, 4, 6, 8 Transaction...Ch. 6 - Prob. 6.21PCh. 6 - Prob. 6.22PCh. 6 - Prob. 6.23PCh. 6 - Problem 6.24 LO 3 Partial-year depreciation...Ch. 6 - Problem 6.25
LO 3
Identify depreciation methods...Ch. 6 - Prob. 6.26PCh. 6 - Prob. 6.27PCh. 6 - Prob. 6.28PCh. 6 - Prob. 6.29PCh. 6 - Prob. 6.30PCh. 6 - Prob. 6.31PCh. 6 - Prob. 6.32PCh. 6 - Prob. 6.33CCh. 6 - Prob. 6.34CCh. 6 - Case 6.35 LO 3, 6 Capstone analytical review of...
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