Question 1 On January 1, 2018, JKJ purchased a 1,000 acre farm with a building.

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Question 1 On January 1, 2018, JKJ purchased a 1,000 acre farm with a building. The asking price was $2,600,000. Approximately 15 percent of the total value of the farm was allocable to the building and the balance of the purchase to ranch improvements. Payment in full was made as follows: Cash, $980,084, 50,000 shares LR common shares (market $25 per share based on several recent large market exchanges) and a $500,000 non- interest-bearing note payable in full on December 31, 2020 (market interest rate, 8 percent). Required: Give the journal entry for JKJ to record this purchase (rounded to the nearest dollar). General Journal Date Account Titles and Explanation Debit Credit Question 2 A new machine was acquired by JR that had a quoted price of $12,000. JR paid $3,000 cash and transferred 200 shares common shares (current market value, $40 per share, based on several recent large trading transactions.). Other payments related to the acquisition were: transportation, $300; refundable sales tax, $150, and installation costs, $600. Required: The asset account should be debited for $ urd

Explanation / Answer

Solution 1:

It is assumed that par value of common stock = $10

Present value of note payable = $500,000 / (1.08^3 = $396,916

Total consideration paid for acquisition = $980,084 + (50000*$25) + $396,916 = $2,627,000

Solution 2:

Assets account will be debited for = Purchase cost + Transportation + Installation cost

= $3,000 + (200*$40) +$300 + $600 = 11,900

Journal Entries - JKJ Date Account Titel and Explanation Debit Credit 1-Jan-18 Building A/c Dr ($2,627,000*15%) $394,050.00 Ranch improvements Dr $2,232,950.00               To Cash $980,084.00               To Note Payable $396,916.00               To Common Stock (50000*$10) $500,000.00               To Paid in capital in excess of par - common stock (50000*$15) $750,000.00

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