Crow Co. purchased some of the machinery of Hare, Inc., a bankrupt competitor, a

Question

Crow Co. purchased some of the machinery of Hare, Inc., a bankrupt competitor, at a liquidation sale for a total cost of $16,000. Crow’s cost of moving and installing the machinery totaled $2,400. The following data are available:

Required:

a. Calculate the amount that should be recorded by Crow Co. as the cost of each piece of equipment. (Do not round intermediate calculations.)

b. Which of the following alternatives should be used as the depreciable life for Crow Co.’s depreciation calculation?

Item Hare’s Net Book Value
on the Date of Sale List Price of
Same Item If New Appraiser’s Estimate
of Fair Value Punch press $ 11,000 $ 18,000 $ 14,000 Lathe 8,310 9,000 6,000 Welder 2,410 5,000 3,030

Explanation / Answer

a. Computation of the amount that should be recorded by Crow Co.

Formula = (Asset Fair Value / Total Assets Fair value) * Purchase cost

1. Punch Press = (Asset Fair Value / Total Assets Fair value) * Purchase cost

Punch Press = (14000 / 23030) * 18400

Punch Press = $11185

2. Lathe = (Asset Fair Value / Total Assets Fair value) * Purchase cost

Lathe = (6000 / 23030) * 18400

Lathe = $4794

3. Welder = (Asset Fair Value / Total Assets Fair value) * Purchase cost

Welder = (3030 / 23030) * 18400

Welder = $2421

b. The remaining useful life of the asset to Crow Co. Option B

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