Plant acquisitions for selected companies are as follows. 1. Belanna Industries
ID: 2477751 • Letter: P
Question
Plant acquisitions for selected companies are as follows.
1. Belanna Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a lump-sum price of $1,028,300. 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. Harry Enterprises purchased store equipment by making a $2,938 cash down payment and signing a 1-year, $33,787, 10% note payable. The purchase was recorded as follows.
3. Kim Company purchased office equipment for $20,400, 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. Kaisson 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 $39,663. The company made no entry to record the land because it had no cost basis.
5. Zimmerman Company built a warehouse for $881,400. It could have purchased the building for $1,087,060. The controller made the following entry.
Prepare the entry that should have been made at the date of each acquisition. (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. Round answers to 0 decimal places, e.g. 5,275.)
No.
Account Titles and Explanation
Debit
Credit
1.
2.
3.
4.
5.
Book Values
Appraisal Values
Land $293,800 $220,350 Buildings 367,250 514,150 Equipment 440,700 440,700Explanation / Answer
1 Apprised Values Assets value % Appraised Value Purchase cost Allocated as % Aapraised value Land 220,350 18.75% 192,806 Building 514,150 43.75% 449,881 Equipment 440,700 37.50% 385,613 Total 1,175,200 1,028,300 Accounting Entry Dr $ Cr $ Land 192,806 Building 449,881 Equipment 385,613 Cash 1,028,300 2 Note payable in 1 Year 33,787 Assuming interest on note and market interest rate same. The Note +Interest PV will be = 33,787 Accounting Entry Dr $ Cr $ Equipment 36,725 Cash 2,938 Note Payable 33,787 3 The equipment cost will be lower by 2% for the discount taken Accounting Entry Dr $ Cr $ Office Equipment 19,992 Cash 19,992 4 The fair value of the land to be recognized: Accounting Entry Dr $ Cr $ Land 39,663 Contribution Revenue 39,663 5 Building to be capitalized at cost Accounting Entry Dr $ Cr $ Building to be capitalized at cost 881,400 Cash 881,400