Oriole Industries purchased the following assets and constructed a building as w
ID: 2513030 • Letter: O
Question
Oriole 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 $330,000 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 $33,000 down payment and issuing a $99,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $49,500 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $118,470.
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 $26 par value common stock. The stock had a market price of $36 per share.
Construction of Building: A building was constructed on land purchased last year at a cost of $495,000. 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 $1,980,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $660,000 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 $330,000 $165,000 $165,000 $297,000 Equipment 198,000 33,000 165,000 99,000Explanation / Answer
Accounts Title Dr Cr Acqusiition of Asset 1 & 2 Machinery 247500 office equipment 82500 Cash $33,000 working : In ratio of 3:1 Machinery (330000/4*3) 247500 office equipment (330000/4*1) 82500 Asset 3 machinery $118,470 Notes payable (bal fig) $19,470 Cash 99000 Asset 4 Machinery (bal fig) 165000 Accumulated Depreciation 132000 Cash 33000 MAchinery 330000 Asset 5 Office equipment (100*36) $3,600 Share capital-Ordinary 2600 Share Premium-Ordinary 1000 Building (bal fig) $3,666,960 Land $495,000 Cash (495000+396000+1188000+1584000+330000) 3993000 Interest expenses 168960 Date Payment No. of months weighted expenditure 1-Feb $396,000 9/9 $396,000 1-Jun 1,188,000 5/9 $660,000 1-Sep 1,584,000 2/9 $352,000 1-Nov 330,000 0 $0 $3,498,000 $1,408,000 Int capitalized:1408000*12% 168960
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