{"id":3618,"date":"2020-10-21T16:37:50","date_gmt":"2020-10-21T16:37:50","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&#038;p=3618"},"modified":"2021-01-14T20:38:01","modified_gmt":"2021-01-14T20:38:01","slug":"journalize-purchases-of-plant-assets","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/journalize-purchases-of-plant-assets\/","title":{"raw":"Journalize Purchases of Plant Assets","rendered":"Journalize Purchases of Plant Assets"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Journalize purchase of plant assets<\/li>\r\n<\/ul>\r\n<\/div>\r\nIn the prior section, we determined the total historical cost of the February 1 purchased land by Spivey Company was $262,800. Assume Spivey is paying 20% down and financing the rest. We would record this purchase as follows:\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\r\n<thead>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Post. Ref.<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>20--<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Feb 1<\/th>\r\n<td>Land<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">262,800.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Feb 1<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Checking Account<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">52,560.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Feb 1<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Notes Payable<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">210,240.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Feb 1<\/span><\/th>\r\n<td>To record purchase of land for factory<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWe also determined the total historical cost of the building completed on June 30 was $490,000. Assume the contractor Spivey hired took out a construction loan to finance the construction as it progressed, and now the entire amount is due and Spivey is paying with a check. We would record this purchase as follows:\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\r\n<thead>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Post. Ref.<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>20--<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">July 1<\/th>\r\n<td>Building<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">490,000.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Checking Account<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">490,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\r\n<td>To record purchase of building<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nSimilarly, Spivey determined the total cost of machinery was $162,000. Assume a $50,000 down payment and a note for the balance. The entry would be:\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\r\n<thead>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Post. Ref.<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>20--<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">July 1<\/th>\r\n<td>Machinery<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">162,000.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Checking Account<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">50,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Notes Payable<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">112,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\r\n<td>To record purchase of new equipment<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<h2>Lump Sum Purchases<\/h2>\r\nSometimes a company buys land and other assets for a lump sum. When land and buildings purchased together are to be used, the firm divides the total cost and establishes separate ledger accounts for land and for buildings. This division of cost establishes the proper balances in the appropriate accounts. This division is especially important later because the depreciation recorded on the buildings affects reported income, while no depreciation is taken on the land.\r\n\r\nLet\u2019s look at an example: Assume in addition to the above transactions, on October 1 Spivey added additional production capacity by purchasing a faltering competitor\u2019s land, machinery, and building for $400,000. After the purchase, in order to allocate the cost, Spivey hired an appraiser who determined the land had a market value of $135,000, machinery of $67,500, and the building of $247,500 for a total value of $450,000. We cannot report the assets at the appraiser\u2019s estimate of market value since Generally Accepted Accounting Principles (GAAP) requires us to use historical cost. Instead, we use a two-step process to get the cost of each asset.\r\n<ol>\r\n \t<li>Calculate each asset\u2019s percent of market value.\u00a0 (Asset market value \/ total market value of all assets.)<\/li>\r\n<\/ol>\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Asset<\/th>\r\n<th scope=\"col\">Appraisal (or<\/th>\r\n<th scope=\"col\">Market) Value<\/th>\r\n<th scope=\"col\">% of MV<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>Land<\/td>\r\n<td>\u00a0 \u00a0 \u00a0 \u00a0 135,000<\/td>\r\n<td>\/450,000 =<\/td>\r\n<td>30%<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Machinery<\/td>\r\n<td>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 67,500<\/td>\r\n<td>\/450,000 =<\/td>\r\n<td>15%<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Building<\/td>\r\n<td>\u00a0 \u00a0 \u00a0 \u00a0 247,500<span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<td>\/450,000 =<\/td>\r\n<td>55%<\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Total<\/th>\r\n<td>450,000<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<ol start=\"2\">\r\n \t<li>Calculate the cost of each asset (total price paid for all assets x % of market value).<\/li>\r\n<\/ol>\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement\">\r\n<tbody>\r\n<tr>\r\n<th scope=\"col\">Asset<\/th>\r\n<th scope=\"col\">% of MV<\/th>\r\n<th scope=\"col\">Purchase Price<\/th>\r\n<th scope=\"col\">Allocated cost of each asset<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>Land<\/td>\r\n<td>30%<\/td>\r\n<td>400,000<\/td>\r\n<td>$\u00a0 \u00a0 120,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Machinery<\/td>\r\n<td>15%<\/td>\r\n<td>400,000<\/td>\r\n<td>$\u00a0 \u00a0 \u00a0 \u00a0 60,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Building<\/td>\r\n<td>55%<\/td>\r\n<td>400,000<\/td>\r\n<td>$\u00a0 \u00a0 220,000\u00a0<span class=\"u-sr-only\">Single line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Total<\/th>\r\n<td><\/td>\r\n<td><\/td>\r\n<td>$\u00a0 \u00a0 400,000<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nThe journal entry to record this purchase for cash of $100,000 and a note for $300,000 would be:\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\r\n<thead>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Post. Ref.<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>20--<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Oct 1<\/th>\r\n<td>Land<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">120,000.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\r\n<td>Building<\/td>\r\n<td><\/td>\r\n<td class=\"r\">60,000.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\r\n<td>Machinery<\/td>\r\n<td><\/td>\r\n<td class=\"r\">220,000.00<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Checking Account<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">100,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Notes Payable<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">300,000.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\r\n<td>To record purchase of new equipment<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\nIn reality, the cost of the machinery would be allocated in detail, because we want to be able to track computers; each piece of equipment; desks; vehicles; and each distinct asset, including different buildings if we have more than one in the lump sum purchase. In short, each item should have an allocated cost.\r\n\r\nAfter posting the journal entries for Spivey, we would see the following balances in the general ledger (GL) control accounts:\r\n\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133044\/Journalize-Purchases-of-Plant-Assets11.png\"><img class=\"alignnone size-full wp-image-5574\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133044\/Journalize-Purchases-of-Plant-Assets11.png\" alt=\"Three T accounts side by side. On the left is a land chart. There is a dash representing the beginning balance on the debit side. There is a debit entry on February 1st of 262,800 dollars. There is a debit entry on October 1st of 120,000 dollars. There is a debit total of 382,800 dollars. In the middle is a machinery chart. There is a dash representing the beginning balance on the debit side. There is a debit entry on July 1st of 162,000 dollars. There is a debit entry on October 1st of 220,000 dollars. There is a debit total of 382,000 dollars. On the right is a building chart. There is a dash representing the beginning balance on the debit side. There is a debit entry on July 1st of 490,000 dollars. There is a debit entry on October 1st of 600,000 dollars. There is a debit total of 1,090,000 dollars.\" width=\"891\" height=\"291\" \/><\/a>\r\n\r\nIn addition to the GL, we would have subsidiary ledgers or lists for each control account that would match the total but would give details of each asset. These lists would include but not be limited to location; purchase date; purchase price; description; and, as we\u2019ll see in the next section, the useful life, method of depreciation, accumulated depreciation, and a host of other information (e.g., serial number, internal tracking number, department, etc.).\r\n<div class=\"textbox tryit\">\r\n<h3>PRACTICE QUESTION<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/23776\r\n\r\n[ohm_question hide_question_numbers=1]205977[\/ohm_question]\r\n\r\n[ohm_question]206562[\/ohm_question]\r\n\r\n[ohm_question]206563[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li style=\"font-weight: 400;\">Journalize purchase of plant assets<\/li>\n<\/ul>\n<\/div>\n<p>In the prior section, we determined the total historical cost of the February 1 purchased land by Spivey Company was $262,800. Assume Spivey is paying 20% down and financing the rest. We would record this purchase as follows:<\/p>\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\n<thead>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Post. Ref.<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>20&#8211;<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Feb 1<\/th>\n<td>Land<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">262,800.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Feb 1<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Checking Account<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">52,560.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Feb 1<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Notes Payable<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">210,240.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Feb 1<\/span><\/th>\n<td>To record purchase of land for factory<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>We also determined the total historical cost of the building completed on June 30 was $490,000. Assume the contractor Spivey hired took out a construction loan to finance the construction as it progressed, and now the entire amount is due and Spivey is paying with a check. We would record this purchase as follows:<\/p>\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\n<thead>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Post. Ref.<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>20&#8211;<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">July 1<\/th>\n<td>Building<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">490,000.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Checking Account<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">490,000.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\n<td>To record purchase of building<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Similarly, Spivey determined the total cost of machinery was $162,000. Assume a $50,000 down payment and a note for the balance. The entry would be:<\/p>\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\n<thead>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Post. Ref.<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>20&#8211;<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">July 1<\/th>\n<td>Machinery<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">162,000.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Checking Account<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">50,000.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Notes Payable<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">112,000.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">July 1<\/span><\/th>\n<td>To record purchase of new equipment<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2>Lump Sum Purchases<\/h2>\n<p>Sometimes a company buys land and other assets for a lump sum. When land and buildings purchased together are to be used, the firm divides the total cost and establishes separate ledger accounts for land and for buildings. This division of cost establishes the proper balances in the appropriate accounts. This division is especially important later because the depreciation recorded on the buildings affects reported income, while no depreciation is taken on the land.<\/p>\n<p>Let\u2019s look at an example: Assume in addition to the above transactions, on October 1 Spivey added additional production capacity by purchasing a faltering competitor\u2019s land, machinery, and building for $400,000. After the purchase, in order to allocate the cost, Spivey hired an appraiser who determined the land had a market value of $135,000, machinery of $67,500, and the building of $247,500 for a total value of $450,000. We cannot report the assets at the appraiser\u2019s estimate of market value since Generally Accepted Accounting Principles (GAAP) requires us to use historical cost. Instead, we use a two-step process to get the cost of each asset.<\/p>\n<ol>\n<li>Calculate each asset\u2019s percent of market value.\u00a0 (Asset market value \/ total market value of all assets.)<\/li>\n<\/ol>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<tbody>\n<tr>\n<th scope=\"col\">Asset<\/th>\n<th scope=\"col\">Appraisal (or<\/th>\n<th scope=\"col\">Market) Value<\/th>\n<th scope=\"col\">% of MV<\/th>\n<\/tr>\n<tr>\n<td>Land<\/td>\n<td>\u00a0 \u00a0 \u00a0 \u00a0 135,000<\/td>\n<td>\/450,000 =<\/td>\n<td>30%<\/td>\n<\/tr>\n<tr>\n<td>Machinery<\/td>\n<td>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 67,500<\/td>\n<td>\/450,000 =<\/td>\n<td>15%<\/td>\n<\/tr>\n<tr>\n<td>Building<\/td>\n<td>\u00a0 \u00a0 \u00a0 \u00a0 247,500<span class=\"u-sr-only\">Single line<\/span><\/td>\n<td>\/450,000 =<\/td>\n<td>55%<\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Total<\/th>\n<td>450,000<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<ol start=\"2\">\n<li>Calculate the cost of each asset (total price paid for all assets x % of market value).<\/li>\n<\/ol>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement\">\n<tbody>\n<tr>\n<th scope=\"col\">Asset<\/th>\n<th scope=\"col\">% of MV<\/th>\n<th scope=\"col\">Purchase Price<\/th>\n<th scope=\"col\">Allocated cost of each asset<\/th>\n<\/tr>\n<tr>\n<td>Land<\/td>\n<td>30%<\/td>\n<td>400,000<\/td>\n<td>$\u00a0 \u00a0 120,000<\/td>\n<\/tr>\n<tr>\n<td>Machinery<\/td>\n<td>15%<\/td>\n<td>400,000<\/td>\n<td>$\u00a0 \u00a0 \u00a0 \u00a0 60,000<\/td>\n<\/tr>\n<tr>\n<td>Building<\/td>\n<td>55%<\/td>\n<td>400,000<\/td>\n<td>$\u00a0 \u00a0 220,000\u00a0<span class=\"u-sr-only\">Single line<\/span><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Total<\/th>\n<td><\/td>\n<td><\/td>\n<td>$\u00a0 \u00a0 400,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>The journal entry to record this purchase for cash of $100,000 and a note for $300,000 would be:<\/p>\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><span style=\"float: right;\">Page 101<\/span><\/caption>\n<thead>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Post. Ref.<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>20&#8211;<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Oct 1<\/th>\n<td>Land<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">120,000.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\n<td>Building<\/td>\n<td><\/td>\n<td class=\"r\">60,000.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\n<td>Machinery<\/td>\n<td><\/td>\n<td class=\"r\">220,000.00<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Checking Account<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">100,000.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Notes Payable<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">300,000.00<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Oct 1<\/span><\/th>\n<td>To record purchase of new equipment<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>In reality, the cost of the machinery would be allocated in detail, because we want to be able to track computers; each piece of equipment; desks; vehicles; and each distinct asset, including different buildings if we have more than one in the lump sum purchase. In short, each item should have an allocated cost.<\/p>\n<p>After posting the journal entries for Spivey, we would see the following balances in the general ledger (GL) control accounts:<\/p>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133044\/Journalize-Purchases-of-Plant-Assets11.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-5574\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/12133044\/Journalize-Purchases-of-Plant-Assets11.png\" alt=\"Three T accounts side by side. On the left is a land chart. There is a dash representing the beginning balance on the debit side. There is a debit entry on February 1st of 262,800 dollars. There is a debit entry on October 1st of 120,000 dollars. There is a debit total of 382,800 dollars. In the middle is a machinery chart. There is a dash representing the beginning balance on the debit side. There is a debit entry on July 1st of 162,000 dollars. There is a debit entry on October 1st of 220,000 dollars. There is a debit total of 382,000 dollars. On the right is a building chart. There is a dash representing the beginning balance on the debit side. There is a debit entry on July 1st of 490,000 dollars. There is a debit entry on October 1st of 600,000 dollars. There is a debit total of 1,090,000 dollars.\" width=\"891\" height=\"291\" \/><\/a><\/p>\n<p>In addition to the GL, we would have subsidiary ledgers or lists for each control account that would match the total but would give details of each asset. These lists would include but not be limited to location; purchase date; purchase price; description; and, as we\u2019ll see in the next section, the useful life, method of depreciation, accumulated depreciation, and a host of other information (e.g., serial number, internal tracking number, department, etc.).<\/p>\n<div class=\"textbox tryit\">\n<h3>PRACTICE QUESTION<\/h3>\n<p>\t<iframe id=\"lumen_assessment_23776\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=23776&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_23776\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<p><iframe loading=\"lazy\" id=\"ohm205977\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=205977&theme=oea&iframe_resize_id=ohm205977\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<p><iframe loading=\"lazy\" id=\"ohm206562\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=206562&theme=oea&iframe_resize_id=ohm206562&show_question_numbers\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<p><iframe loading=\"lazy\" id=\"ohm206563\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=206563&theme=oea&iframe_resize_id=ohm206563&show_question_numbers\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-3618\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Journalize Purchases of Plant Assets. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. Hermanson, Georgia State University. <strong>Provided by<\/strong>: Endeavour International Corporation. <strong>Project<\/strong>: The Global Text Project. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":90270,"menu_order":5,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Journalize Purchases of Plant Assets\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. Hermanson, Georgia State University\",\"organization\":\"Endeavour International Corporation\",\"url\":\"\",\"project\":\"The Global Text Project\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-3618","chapter","type-chapter","status-publish","hentry"],"part":766,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3618","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/users\/90270"}],"version-history":[{"count":14,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3618\/revisions"}],"predecessor-version":[{"id":6718,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3618\/revisions\/6718"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/parts\/766"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3618\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/media?parent=3618"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=3618"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/contributor?post=3618"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/license?post=3618"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}