(Asset Acquisition) Hayes 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 \(100,000 cash. The following information was gathered.
Description | Initial Cost on Seller’s Books | Depreciation to Date on Seller’s Books | Book Value on Seller’s Books | Appraised value |
Machinery | \)100,000 | \(50,000 | \)50,000 | \(90,000 |
Equipment | 60,000 | 10,000 | 50,000 | 30,000 |
Asset 3: This machine was acquired by making a \)10,000 down payment and issuing a \(30,000, 2-year, zero-interest-bearing note. The note is to be paid off in two \)15,000 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for \(35,900.
Asset 4: This machinery was acquired by trading in used machinery. (The exchange lacks commercial substance.) Facts concerning the trade-in are as follows.
Cost of machinery traded | \)100,000 |
Accumulated depreciation to date of sale | 40,000 |
Fair value of machinery traded | 80,000 |
Cash received | 10,000 |
Fair value of machinery acquired | 70,000 |
Asset 5: Equipment was acquired by issuing 100 shares of \(8 par value common stock. The stock had a market price of \)11 per share.
Construction of Building: A building was constructed on land purchased last year at a cost of \(150,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows.
Date | Payment |
2/1 | \)120,000 |
6/1 | 360,000 |
9/1 | 480,000 |
11/1 | 100,000 |
To finance construction of the building, a \(600,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had \)200,000 of other outstanding debt during the year at a borrowing rate of 8%.
Instructions
Record the acquisition of each of these assets.
