King decided to allocate the $125,000 purchase price as follows: $20,000 for the land, $80,000 for the building, $8,500 for fixtures and equipment, and $16,500 for inventory. He based this allocation on a fair market appraisal value of the land and building (not on often unreliable county tax records) and the historical cost of the merchandise in inventory. However, he was unsure how the $5,000 of closing costs should be treated. On the final day of March, King was busy preparing his store for opening:

a. He purchased a fire insurance policy covering the building and its contents and paid the $1,200 annual premium in advance. 

b. Additional shelving and fixtures were purchased for $1,300 cash. 

c. A shipment of books arrived

Answer rating: 100% (QA)

When accounting for the purchase price allocation of an acquired business and subsequent expenses its important to consider generally accepted account... View the full answer