Students will calculate the cost that should be assigned to land, buildings, and equipment and provide the journal entry to record the acquisition of these assets.
Sam’s Corporation paid $550,000 to acquire land, building, and equipment. At the time of the acquisition, Sam paid $50,000 to have the property appraised. The following values were determined from the appraisal:
Respond to the following questions:
- What cost should Sam assign to the land, buildings, and equipment, respectively?
- How should the journal entry be recorded on the corporation’s books to describe this acquisition?
- Why is it necessary to allocate a lump sum purchase amount among the individual assets acquired?
- What are the characteristics that an asset must have for it to be classified as property, plant, and equipment?
- Generally accepted accounting principles (GAAP) requires that property, plant, and equipment should be recorded at historical cost. What are the advantages of recording property, plant, and equipment at historical cost?