Exercise 8-5A Allocating costs on the basis of relative market values Midwest Company purchased a building and the land on which the building is situated for a total cost of $900,000 cash. The land was appraised at $200,000 and the building at $800,000. 424 Cash Chapter 8 Assets + Land + 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 allo- cate to the building. c. Would the company recognize a gain on the purchase? Why or why not? d. Record the purchase in a statements model like the following one. Building = Liab. + Equity Rev. e. Record the purchases in general journal format. LO 2 Exp. = Net Inc. Cash Flow
Exercise 8-5A Allocating costs on the basis of relative market values Midwest Company purchased a building and the land on which the building is situated for a total cost of $900,000 cash. The land was appraised at $200,000 and the building at $800,000. 424 Cash Chapter 8 Assets + Land + 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 allo- cate to the building. c. Would the company recognize a gain on the purchase? Why or why not? d. Record the purchase in a statements model like the following one. Building = Liab. + Equity Rev. e. Record the purchases in general journal format. LO 2 Exp. = Net Inc. Cash Flow
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 8-5A Allocating costs on the basis of relative market values
Midwest Company purchased a building and the land on which the building is situated for a total
cost of $900,000 cash. The land was appraised at $200,000 and the building at $800,000.
424
Cash
Chapter 8
Assets
+ Land +
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 allo-
cate to the building.
c. Would the company recognize a gain on the purchase? Why or why not?
d. Record the purchase in a statements model like the following one.
Building
Liab. + Equity Rev.
e. Record the purchases in general journal format.
LO 2
Exp.
=
Net Inc.
Cash Flow
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