Question

Coronado Industries Inc. constructed a building and acquired five assets during the current year.

Construction of Building: A building was constructed on land purchased last year at a cost of $216,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows.

Date		Payment
March 1		$324,000
July 1		247,500
October 1		292,500

Coronado obtained a $630,000, 8% construction loan on March 1. Coronado repaid the loan on October 1. Coronado had $360,000 of other outstanding debt during the year at a borrowing rate of 9%.

Asset 1: Coronado acquired office furniture by making a $6,750 down payment and issuing a $9,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $4,500 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $14,580.

Asset 2: Coronado acquired manufacturing equipment by trading in used manufacturing equipment. (The exchange lacks commercial substance.) Facts concerning the trade-in are as follows.

Cost of equipment traded in		$46,800
Accumulated depreciation on equipment traded in - to date of sale		30,600
Fair value of equipment traded		22,500
Cash received		2,250
Fair value of equipment acquired		20,250

Asset 3: Four computers were acquired by issuing 500 shares of $1 par value common stock. The stock had a market price of $12 per share.

Assets 4 and 5: Coronado purchased these assets together for a lump sum of $207,000 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
Forklifts		$67,500			$18,000			$49,500			$45,000
Equipment		162,000			36,000			126,000			148,500
Trucks		58,500			13,500			45,000			31,500

Record the acquisition of each of these assets. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
Acquisition of Asset 1
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
Acquisition of Asset 2
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
Acquisition of Asset 3
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
Acquisition of Assets 4 and 5
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

Asset 1

Accounts	Debit	Credit
Furniture	14580
Discount on Notes Payable	1170
Notes Payable		9000
Cash		6750

Asset 2

Accounts	Debit	Credit
Machinery (20250 - 5670)	14580
Accumulated depreciation	30600
Cash	2250
Machinery		46800
Gain on disposal of machinery		630

Since the exchange lacks commercial substance, a gain will be recognized in the proportion of cash received.

Proportion = 2250 / 22500 = 0.1

Gain = 6300 (FMV 22500 minus BV 16200)

BV = 46800 - 30600 = 16200

The gain recognized = 0.1 * 6300 = 630

Reduction in basis of asset = 6300 - 630 = 5670

Asset 3

Accounts	Debit	Credit
Office equipment	6000
Share capital (500 * 1)		500
Additional paid in capital (500 * 11)		5500

Asset 4 and 5

Accounts	Debit	Credit
Forklift	41400
Equipment	136620
Trucks	28980
Cash		207000

Forklift = 45000 / (45000 + 148500 + 31500) * 207000 = 41400

Equipment = 148500 / (45000 + 148500 + 31500) * 207000 = 136620

Trucks = 31500 / (45000 + 148500 + 31500) * 207000 = 28980