Plant acquisitions for selected companies are as follows. 1. Pearl Industries In
ID: 2583144 • Letter: P
Question
Plant acquisitions for selected companies are as follows.
1. Pearl Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a lump-sum price of $812,000. 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. Martinez Enterprises purchased store equipment by making a $2,320 cash down payment and signing a 1-year, $26,680, 10% note payable. The purchase was recorded as follows.
3. Sandhill Company purchased office equipment for $18,000, 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. Teal 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 $31,320. The company made no entry to record the land because it had no cost basis.
5. Flint Company built a warehouse for $696,000. It could have purchased the building for $858,400. The controller made the following entry.
Prepare the entry that should have been made at the date of each acquisition
Book Values
Appraisal Values
Land $232,000 $174,000 Buildings 290,000 406,000 Equipment 348,000 348,000Explanation / Answer
1 Account Titles and Explanation Debit Credit Land (812000 x 174000/928000*) 152250 Buildings (812000 x 406000/928000*) 355250 Equipment (812000 x 348000/928000*) 304500 Cash 812000 (To record lumpsum purchase of assets) *174000 + 406000 + 348000 = 928000 2 Account Titles and Explanation Debit Credit Equipment 29000 Cash 2320 Notes payable 26680 (To record purchase of store equipment) 3 Account Titles and Explanation Debit Credit Equipment [18000 - (2% x 18000)] 17640 Cash 17640 (To record purchase of office equipment) 4 Account Titles and Explanation Debit Credit Land 31320 Contribution revenue 31320 (To record land received at zero cost) 5 Account Titles and Explanation Debit Credit Buildings 696000 Cash 696000 (To record cost of warehouse constructed)