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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Lump-Sum Purchase Garrett Corporation paid $200,000 to acquire land, buildings, and equipment. At the time of acquisition, Garrett paid $20,000 for an appraisal, which revealed the following values: land, $100,000; buildings, $125,000; and equipment, $25,000.

Required:

  1. 1. What cost should the company assign to the land, buildings, and equipment, respectively?
  2. 2. Assume that Garrett uses IFRS and chooses to use the revaluation model to value its property, plant, and equipment. At the end of the year, the book value of the land, buildings, and equipment are $88,000, $104,000, and $18,000, respectively. The company determines that the fair value of the land, buildings, and equipment at the end of year is $110,000, $106,000, and $15,000, respectively. Prepare the journal entries that Garrett should make to value its property, plant, and equipment.

1.

To determine

Identify the cost assigned to land, buildings, and equipment.

Explanation

Determination of cost:

The procurement or acquisition cost of “property, plant and equipment” comprises of all costs that are required to obtain the benefits to be derived from the asset.

Calculate the cost assigned to land:

Costassignedtoland=Totalcost×Pecentageofappraisal=$220,000(4)×40%(1)=$88,000

Therefore, the cost assigned to land is $88,000.

Calculate the cost assigned to building:

Costassignedtobuilding=Totalcost×Pecentageofappraisal=$220,000(4)×50%(2)=$110,000

Therefore, the cost assigned to building is $110,000.

Calculate the cost assigned to equipment:

Costassignedtoequipment=Totalcost×Pecentageofappraisal=$220,000(4)×10%(3)=$22,000

Therefore, the cost assigned to equipment is $22,000

2.

To determine

Journalize entries to value property, plant and equipment of Corporation G.

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