Reference no: EM131714033

Question -

Part 1: McCoy's Fish House purchases a tract of land and an existing building for $820,000. The company plans to remove the old building and construct a new restaurant on the site. In addition to the purchase price, McCoy pays closing costs, including title insurance of $1,200. The company also pays $10,400 in property taxes, which includes $7,200 of back taxes (unpaid taxes from previous years) paid by McCoy on behalf of the seller and $3,200 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $41,000 to tear down the old building and remove it from the site. McCoy is able to sell salvaged materials from the old building for $5,600 and pays an additional $11,300 to level the land.

Required: Determine the amount McCoy's Fish House should record as the cost of the land.

Part 2: Red Rock Bakery purchases land, building, and equipment for a single purchase price of $340,000. However, the estimated fair values of the land, buildings, and equipment are $132,000, $264,000, and $44,000, respectively, for a total estimated fair value of $440,000.

Required: Determine the amounts Red Rock should record in the separate accounts for the land, the building, and the equipment.