Students will calculate the cost that should be assigned to

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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:

Land

180,000

Building

285,000

Equipment

175,000

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?

Reference no: EM13393402

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