Hayes Industries purchased the following assets and constructed a building as we
ID: 2468277 • Letter: H
Question
Hayes Industries purchased the following assets and constructed a building as well. All this was done during the current year.
Assets 1 and 2: These assets were purchased as a lump sum for $180,000 cash. The following information was gathered.
Description
Initial Cost on
Seller’s Books
Depreciation to
Date on Seller’s Books
Book Value on
Seller’s Books
Appraised Value
Asset 3: This machine was acquired by making a $18,000 down payment and issuing a $54,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $27,000 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $64,620.
Asset 4: This machinery was acquired by trading in used machinery. (The exchange lacks commercial substance.)
Facts concerning the trade-in are as follows.
Asset 5
Office equipment was acquired by issuing 100 shares of $14 par value common stock. The stock had a market price of $20 per share.
Construction of Building: A building was constructed on land purchased last year at a cost of $270,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows.
Date
Payment
To finance construction of the building, a $1,080,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $360,000 of other outstanding debt during the year at a borrowing rate of 8%.
Record the acquisition of each of these assets. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
(To record acquisition of Office Equipment)
Description
Initial Cost on
Seller’s Books
Depreciation to
Date on Seller’s Books
Book Value on
Seller’s Books
Appraised Value
Machinery $180,000 $90,000 $90,000 $162,000 Equipment 108,000 18,000 90,000 54,000Explanation / Answer
Ans-
Assets 1 & 2 Machinery A/c Dr. 135000 Equipment A/c Dr. 45000 Cash 180000 Fair Value Machinery 162000 Equipment 54000 Total 216000 Lump sum value 180000 Machinery 135000 162000/216000*180000 Equipment 45000 54000/216000*180000 3 Machinery A/c Dr. 64620 Discount on notes Payable A/c Dr. 7380 (54000+18000-64620) Cash 18000 Notes Payable 54000 4 Machinery A/c Dr. 126000 Cash A/c Dr. 18000 Machinery 108000 Gain on exchange of old machine 36,000 5 Office Equipment A/c Dr. 2000 To Stock 2,000 (100*20) Cost of machinery traded $180,000 Accumulated depreciation to date of sale 72,000 Fair value of machinery traded 144,000 Cash received 18,000 108,000 Fair value of machinery acquired 126,000Related Questions
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