Metlock Industries purchased the following assets and constructed a building as
ID: 2508049 • Letter: M
Question
Metlock 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 $210,000 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 $21,000 down payment and issuing a $63,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $31,500 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $75,390.
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 $17 par value common stock. The stock had a market price of $23 per share.
Construction of Building: A building was constructed on land purchased last year at a cost of $315,000. 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 $1,260,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $420,000 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 $210,000 $105,000 $105,000 $189,000 Equipment 126,000 21,000 105,000 63,000Explanation / Answer
Account Title & explanation Debit credit
Acquisition of asset 1 & 2
Machinery account 105,000
Equipment account 105,000
to cash 210000
Acquisition of asset 3
Machine account 75,390
Interest account 8,610
to cash 21000
to interest bearing note 63000
Acquisition of asset 4
No entry required 0 0