Question

(Entries for Acquisition of Assets) Presented below is information related to Zonker Company.

1. On July 6, Zonker Company acquired the plant assets of Doonesbury Company, which had discontinued operations. The appraised value of the property is:

Land	\( 400,000
Buildings	1,200,000
Equipment	800,000
Total	\)2,400,000

Zonker Company gave 12,500 shares of its $100parvaluecommonstockinexchange.Thestockhadamarketpriceof$168 per share on the date of the purchase of the property.

2. Zonker Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building.

Repairs to building	\(105,000
Construction of bases for equipment to be installed later	135,000
Driveways and parking lots	122,000
Remodeling of office space in building, including new partitions and walls	161,000
Special assessment by city on land	18,000

3. On December 20, the company paid cash for equipment, \)260,000, subject to a 2% cash discount, and freight on equipment of $10,500.

Instructions

Prepare entries on the books of Zonker Company for these transactions.

Short answer

1. Paid-in capital = $850,000
2. Building = $266,000
3. Equipment = $265,300

Step-by-step solution

Meaning of Acquisition of Cost

Acquisition cost is the expenditure incurred to purchase a new asset, take over someone's business, etc., by a business entity.

(1) Preparing journal entry

Date	Particular	Debit ($)	Credit ($)
	Land	350,000
	Building	1,050,000
	Equipment	700,000
	Common Stock		1,250,000
	Paid-in Capital in Excess of Par-Common Stock		850,000
	(To record the acquisition)

Working notes:

Calculation of common stock

$\begin{array}{rcl}\mathit{C}\mathit{o}\mathit{m}\mathit{m}\mathit{o}\mathit{n}\mathbf{}\mathit{s}\mathit{t}\mathit{o}\mathit{c}\mathit{k}& \mathbf{=}& \mathit{S}\mathit{h}\mathit{a}\mathit{r}\mathit{e}\mathit{s}\mathbf{\times }\mathit{P}\mathit{e}\mathit{r}\mathbf{}\mathit{s}\mathit{h}\mathit{a}\mathit{r}\mathit{e}\mathbf{}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\\ & \mathbf{=}& \mathbf{12}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{\$}\mathbf{100}\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{250}\mathbf{,}\mathbf{000}\end{array}$

Calculation of Paid-in Capital in Excess of Par-Common Stock

$\begin{array}{rcl}\mathit{P}\mathit{a}\mathit{i}\mathit{d}\mathbf{-}\mathit{i}\mathit{n}\mathbf{}\mathit{c}\mathit{a}\mathit{p}\mathit{i}\mathit{t}\mathit{a}\mathit{l}& \mathbf{=}& \mathbf{(}\mathit{S}\mathit{h}\mathit{a}\mathit{r}\mathit{e}\mathit{s}\mathbf{\times }\mathit{M}\mathit{a}\mathit{r}\mathit{k}\mathit{e}\mathit{t}\mathbf{}\mathit{p}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathbf{)}\mathbf{-}\mathit{C}\mathit{o}\mathit{m}\mathit{m}\mathit{o}\mathit{n}\mathbf{}\mathit{s}\mathit{t}\mathit{o}\mathit{c}\mathit{k}\\ & \mathbf{=}& \mathbf{(}\mathbf{12}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{\$}\mathbf{168}\mathbf{)}\mathbf{-}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{250}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{100}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{250}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{850}\mathbf{,}\mathbf{000}\end{array}$

The cost of the property, plant and equipment is $2,100,000 ($12,500 X $168). This cost is allocated based on appraisal values as follows:

Asset	Calculation	Cost
Land	$\frac{\mathbf{\$}\mathbf{400}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{400}\mathbf{,}\mathbf{000}}\mathbf{\times }\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{100}\mathbf{,}\mathbf{000}$	$350,000
Building	$\frac{\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{200}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{400}\mathbf{,}\mathbf{000}}\mathbf{\times }\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{100}\mathbf{,}\mathbf{000}$	$1,050,000
Equipment	$\frac{\mathbf{\$}\mathbf{800}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{400}\mathbf{,}\mathbf{000}}\mathbf{\times }\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{100}\mathbf{,}\mathbf{000}$	$700,000

(2) Preparing journal entry

Date	Particular	Debit ($)	Credit ($)
	Buildings	266,000
	Equipment	135,000
	Land Improvements	122,000
	Land	18,000
	Cash		541,000
	(To record the payment)

Working notes:

Calculating the total amount of building

$\begin{array}{rcl}\mathit{B}\mathit{u}\mathit{i}\mathit{l}\mathit{d}\mathit{i}\mathit{n}\mathit{g}& \mathbf{=}& \mathit{R}\mathit{e}\mathit{p}\mathit{a}\mathit{i}\mathit{r}\mathit{s}\mathbf{}\mathit{t}\mathit{o}\mathbf{}\mathit{b}\mathit{u}\mathit{i}\mathit{l}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathbf{+}\mathit{R}\mathit{e}\mathit{n}\mathit{o}\mathit{v}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\\ & \mathbf{=}& \mathbf{\$}\mathbf{105}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{161}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{266}\mathbf{,}\mathbf{000}\end{array}$

(3) Preparing journal entry

Date	Particular	Debit ($)	Credit ($)
	Equipment	265,300
	Cash		265,300
	(To record the payment for equipment)

Working notes:

Calculation of equipment cost

$\begin{array}{rcl}\mathit{E}\mathit{q}\mathit{u}\mathit{i}\mathit{p}\mathit{m}\mathit{e}\mathit{n}\mathit{t}& \mathbf{=}& \mathit{F}\mathit{r}\mathit{e}\mathit{i}\mathit{g}\mathit{h}\mathit{t}\mathbf{+}\mathbf{[}\mathit{C}\mathit{a}\mathit{s}\mathit{h}\mathit{p}\mathit{a}\mathit{i}\mathit{d}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{e}\mathit{q}\mathit{u}\mathit{i}\mathit{p}\mathit{m}\mathit{e}\mathit{n}\mathit{t}\mathbf{-}\mathbf{(}\mathit{C}\mathit{a}\mathit{s}\mathit{h}\mathit{p}\mathit{a}\mathit{i}\mathit{d}\mathbf{}\mathit{f}\mathit{o}\mathit{r}\mathbf{}\mathit{e}\mathit{q}\mathit{u}\mathit{i}\mathit{p}\mathit{m}\mathit{e}\mathit{n}\mathit{t}\mathbf{\times }\mathit{C}\mathit{a}\mathit{s}\mathit{h}\mathbf{}\mathit{d}\mathit{p}\mathit{s}\mathit{c}\mathit{o}\mathit{u}\mathit{n}\mathit{t}\mathbf{\left)}\mathbf{\right]}\\ & \mathbf{=}& \mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{500}\mathbf{+}\mathbf{[}\mathbf{\$}\mathbf{260}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{(}\mathbf{\$}\mathbf{260}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{.}\mathbf{02}\mathbf{\left)}\mathbf{\right]}\\ & \mathbf{=}& \mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{500}\mathbf{+}\mathbf{\$}\mathbf{254}\mathbf{,}\mathbf{800}\\ & \mathbf{=}& \mathbf{\$}\mathbf{265}\mathbf{,}\mathbf{300}\end{array}$