Craig purchased a facility that includes land, a building, machinery and equipment and some inventory supplies for a total cost of $ 425,000 on March 31, 2027. He obtained a 2 year note from the bank for the purchase. The previous owner decided to sell his facility at a reduced price as reflected in the fair values of the individual assets Craig acquired. You know to record this as a lump sum purchase (or basket purchase). Journalize the following transactions.

Fair Market Value of Assets in Purchase:

Land $111,250

Building $222,500

Backhoe $55,625

Trailer $22,250

Inventory Supplies $33,375

1. Determine the acquisition cost of each asset purchased in this lump-sum purchase (also referred to as a basket purchase). You will create a separate asset account for each of the assets listed above. Add new accounts as needed. Create a new account for the Inventory Supplies (do not use Inventory Asset). Round amounts to the nearest dollar. Journalize this transaction.

2. On April 10th, 2027 Craig decided to sell all the inventory supplies to a local company for $37,000. You will record the gain or loss for this transaction. Craig will use this entire amount to pay down the note. Record the sale and the payment of the note as two separate journal transactions.

3. Craig also decides he will not need the backhoe. He sold the backhoe for $49,500 to another local company on April 25, 2027. No need to record any depreciation as it was not used in the business. You will record the gain or loss for this transaction. Craig will also use this entire amount to pay down the note. Record the sale and the payment of the note as two separate journal transactions.

Additional questions:

1. Why is it important for a company to record the assets using the lump-sum (or basket purchase) approach?

2. What is the balance in the Notes Payable from this lump-sum purchase after all the above transactions? Hint: Draw a T account