Understanding Lump-Sum Purchases in Accounting

The video tutorial explains lump sum purchases, where multiple assets are bought in a single transaction. It details how to allocate the total purchase cost among different assets based on their appraised values. An example is provided using November Company's purchase of Oscar Company, illustrating the calculation of individual asset costs. The process involves determining the proportion of each asset's appraised value relative to the total appraised value, then applying these proportions to the total purchase cost to find the cost allocated to each asset.

What is another term used for lump-sum purchases?

• Group purchases

• Single asset purchases

• Basket purchases

• Bulk purchases

In the example, what is the total appraised value of the assets purchased by November Company?

• $3 million

• $2.4 million

• $1.25 million

• $2 million

How is the proportion of the appraised value for each asset determined?

• By dividing the appraised value by the total appraised value

• By multiplying the appraised value by the purchase price

• By adding the appraised value to the purchase price

• By dividing the appraised value by the purchase price

What percentage of the appraised value is allocated to the building in the example?

• 1.67%

• 52.08%

• 15%

• 31.25%

What is the final allocated cost for the land in the example?

• $625,000

• $1,041,600

• $300,000

• $334