143. A company\'s old machine that cost $59,000 and had accumulated depreciation

Question

143. A company's old machine that cost $59,000 and had accumulated depreciation of $47,100 was traded in on a new machine having an estimated 20-year life with an invoice price of $70,900. The company also paid $60,100 cash, along with its old machine to acquire the new machine. If this transaction has commercial substance, the new machine should be recorded at:

143B. A company issued 7.0%, 5-year bonds with a par value of $160,000. The market rate when the bonds were issued was 8.0%. The company received $153,511.28 cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is:

143C.Farmer and Taylor formed a partnership with capital contributions of $280,000 and $330,000, respectively. Their partnership agreement calls for Farmer to receive a $86,000 per year salary. The remaining income or loss is to be divided equally. If the net income for the current year is $231,000, then Farmer and Taylor's respective shares are:

143D. Riverboat Adventures pays $460,000 plus $9,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $81,600, a building appraised at $172,800, and paddleboats appraised at $225,600. Compute the cost that should be allocated to the building.

Explanation / Answer

Answer 143. Value of New Machine: Cash Paid      60,100.00 Book Value of Old Machine exchanged: Cost of Old Machine      59,000.00 Accumulated Depreciation (47,100.00)      11,900.00 Value of New Machine      72,000.00 But the New Machine invoice price (or fair market value) is $70,900. So, the Value of New Machine id $70,900 anf the balance amount of $1,100 ($72,000 - $70,900) will be treated as Loss on Disposal. Answer 143B. Discount Amortization Schedule Date Interest Paid - $160,000 X 7% X 6/12 Interest Expense - Preceeding Bond Carrying Value X 8% X 6/12 Discount Amortization Unamortized Discount Bonds Carrying Amount A B C = B - A D = D - C E = $160,000 - D 0                         -                                      -                                -                 6,488.72             153,511.28 1            5,600.00                       6,140.45                    540.45               5,948.27             154,051.73 2            5,600.00                       6,162.07                    562.07               5,386.20             154,613.80 Interest Expense - second semiannual interest period = $6,162.07 Answer 143C. Farmer Taylor Total Net Income    231,000.00 Salary paid to Farmer                     -        86,000.00      86,000.00 Balance    145,000.00 Profit - Divided Equally      72,500.00      72,500.00    145,000.00 Total Profit      72,500.00    158,500.00 Answer 143D. Total Amount paid = $460,000 + $9,000 = $469,000 Fair Value Percentage Allocated Cost Land          81,600.00 17%              79,730.00 Building        172,800.00 36%            168,840.00 Paddleboats        225,600.00 47%            220,430.00 Total        480,000.00            469,000.00 Cost to be Allocated to Building = $168,840

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