Question

1. Newt Scamander Corporation acquired the following assets associated with a manufacturing facility for a lump-sum price of $10,800,000. According to independent appraisals, the fair values were $2,900,000, $4,350,000, $5,800,000, and $1,450,000 for the building, patent, land, and equipment, respectively. What would be the initial recorded amount for the patent?

2. On August 17, 2021, Gringotts Corporation issued 6,500 shares of its no-par common stock in exchange for a patent. The market price of the common stock was $31 per share on . Gringotts also received a tract of land from the City of London as an enticement to build a new bank on the site. The land had a fair value of $640,000 and Gringotts was required to pay only $385,000 to secure title to the land.

Prepare the journal entries to record the transactions.

(Record the issue of 6,500 shares of its no-par common stock in exchange for a patent.)

(Record the receipt of land as an enticement which had a fair value of $640,000 and Gringotts was required to pay only $385,000 to secure title to the land.)

Answer 1

1)
	Fair value	Proportion
Building	$ 2,900,000
Patent	$ 4,350,000	30% ( $ 4,350,000 / $ 14,500,000 )
Land	$ 5,800,000
Equipment	$ 1,450,000
Total	$ 14,500,000	100%
Initial Amount recorded for the patent          = Lump-sum price x Proportion of Patent          = $ 10,800,000 x 30%	$ 3,240,000

Event	Account titles and Explanations	Debit	Credit
1	Patent ( 6,500 shares x$ 31 )	$ 201,500
	Common stock		$ 201,500
	(To record the purchase of no-par common stock in exchange of a patent )
2	Land	$ 640,000
	Cash		$ 385,000
	Revenue - Donation of Asset - bal. Fig.		$ 255,000
	(To record the receipt of land as an enticement )