Exercise 10-6 Plant acquisitions for selected companies are as follows. 1. Sage
ID: 2580827 • Letter: E
Question
Exercise 10-6
Plant acquisitions for selected companies are as follows.
1. Sage Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a lump-sum price of $910,000. At the time of purchase, Torres’s assets had the following book and appraisal values.
Book Values
Appraisal Values
To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made.
2. Pronghorn Enterprises purchased store equipment by making a $2,600 cash down payment and signing a 1-year, $29,900, 10% note payable. The purchase was recorded as follows.
3. Stellar Company purchased office equipment for $19,200, terms 2/10, n/30. Because the company intended to take the discount, it made no entry until it paid for the acquisition. The entry was:
4. Pearl Inc. recently received at zero cost land from the Village of Cardassia as an inducement to locate its business in the Village. The appraised value of the land is $35,100. The company made no entry to record the land because it had no cost basis.
5. Martinez Company built a warehouse for $780,000. It could have purchased the building for $962,000. The controller made the following entry.
Prepare the entry that should have been made at the date of each acquisition. (Round intermediate calculations to 5 decimal palces, e.g. 0.56487 and final answers to 0 decimal places, e.g. 5,275. 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.)
No.
Account Titles and Explanation
Debit
Credit
1.
2.
3.
4.
5.
Book Values
Appraisal Values
Land $260,000 $195,000 Buildings 325,000 455,000 Equipment 390,000 390,000Explanation / Answer
1.journal entries in the books of saga industries Inc.
Land a/c. Dr. 195000
Buildings a/c Dr. 325000
Equipment a/c Dr. 390000
To. Cash. A/c. 910000
( Being assets purchase and recognized lower of the book value and appraisal value).
2.proghorn Enterprise books.
Store Equipment A/c. Dr 32500
To cash a/c. 2600
To 10 % note payable. 29900
( Being store equipment purchased for cash and balance payable in form of 10% notes payable)
Interest expense should not be capitalized because it is readily available for use asset not a qualifying asset)
3.in the books of stellar company.
Equipment a/c. Dr. 18816
To cash a/c. 18816
( Being equipment purchased for cash discount should beducted from the cost of equipment)
4.pearl Inc received land from cardassia free of cost ,it is nature of government Grant.
So land should be recorded at nominal value.
Land. A/c. Dr 100
To capital reserve 100
( Being land recognized in the books at nominal cost).
5. Ware house. A/c Dr 780000
To cash a/c 780000
(Being construction of warehouse expense transferred to warehouse account )
Profit on construction should not be recognized.
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