Blue Industries purchased the following assets and constructed a building as wel
ID: 2511266 • Letter: B
Question
Blue 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 $310,000 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 $31,000 down payment and issuing a $93,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $46,500 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $111,290.
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: Equipment was acquired by issuing 100 shares of $25 par value common stock. The stock had a market price of $34 per share.
Construction of Building: A building was constructed on land purchased last year at a cost of $465,000. 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 $1,860,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $620,000 of other outstanding debt during the year at a borrowing rate of 8%.
Record the acquisition of each of these assets. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places e.g. 58,971. 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 $310,000 $155,000 $155,000 $279,000 Equipment 186,000 31,000 155,000 93,000Explanation / Answer
Journal Entries S.No. Account Name Debit Credit For Assets 1&2 1 Machinery $ 232,500 Equipment $ 77,500 To Cash $ 310,000 ( Beiing acquisition of assets 1&2 are recorded in the ratio of appraised value, i.e. 3:1) For Assets 3 2 Machinery $ 111,290 To Notes Payable $ 80,290 To Cash $ 31,000 ( Beiing acquisition of assets 3 is recorded) For Assets 4 3 Machinery $ 155,000 Accumulated Depreciation $ 124,000 Cash $ 31,000 To Machinery $ 310,000 ( Beiing acquisition of assets 4 is recorded) For Assets 5 Equipment $ 3,400 To Share Capital $ 2,500 To Share Premium $ 900 ( Beiing acquisition of assets 5 is recorded) Building Building $ 3,453,400 Land $ 465,000 To Cash $ 3,751,000 To Interest Expenses $ 167,400 (Being Land purchases and building constructed thereon which is financed for $1860000 @ 12% for 9 months)
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