ACQUISITION COSTS IN A BASKET PURCHASE. Carthage Apartments purchased an apartment building and the land on which it stands for $490,000. In addition, Carthage paid closing costs and transfer taxes in the amount of $6,000.

Immediately following acquisition, Carthage hired an appraisal firm to estimate the value of the land and building. The land was appraised at $125,000, and the building was appraised at $375,000. Shortly after the appraisal, Carthage spent $62,000 to renovate part of the building.

REQUIRED:
1. Compute the separate costs for the land and the building. Why is it necessary to separate the cost of the land from the cost of the building?
2. Prepare the journal entries to record the acquisition and the renovation.