On July 1, Year 1, Colman Company sold land with a carrying amount of $75,000 to

ID: 2529999 • Letter: O

Question

Monte Company in exchange for $50,000 in cash and a note calling for five annual $10,000

payments beginning on June 30, Year 2, and ending on June 30, Year 6. The fair value of

the land is uncertain, and Monte can borrow long-term funds at 11%. What should be the

amount capitalized as acquisition cost of the land by Monte Company? (The present value of

$1 for five periods at 11% is 0.59345, and the present value of an ordinary annuity of $1 for

five periods at 11% is 3.6959.)

The amount capitalized as acquisition cost of the land by Monte Company should be:

= ($10,000 x 3.6959) + $50,000

= $86,959

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