Question

13

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

Land		$600,000
Buildings		1,800,000
Equipment		1,200,000
Total		$3,600,000

Windsor Company gave 12,500 shares of its $100 par value common stock in exchange. The stock had a market price of $168 per share on the date of the purchase of the property.

2. Windsor Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building. (Prepare consolidated entry for all transactions below.)

Repairs to building		$157,500
Construction of bases for equipment to be installed later		202,500
Driveways and parking lots		183,000
Remodeling of office space in building, including new partitions and walls		241,500
Special assessment by city on land		27,000

3. On December 20, the company paid cash for equipment, $390,000, subject to a 2% cash discount, and freight on equipment of $15,750.

Prepare entries on the books of Windsor Company for these transactions. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
1.
2.
3.

Answer 1

1.

No.	Account Titles and Explanation	Debit	Credit
1.	Land (see below- Explanation-1)	$350,000
	Buildings	$1,050,000
	Equipment	$700,000
	Share Capital- ordinary (12,500 shares ×$100)		$1,250,000
	Share Premium- ordinary (12,500 shares × ($168 - $100)]		$850,000
	(To record issue of common stock in exchange of Plant assets)
2.	Building ($157,500 + $241,500)	$399,000
	Equipment	$202,500
	Land Improvements	$183,000
	Land	$27,000
	Cash		$811,500
	(To record the amount expended by company)
3.	Equipment (see below- Explanation-2)	$397,950
	Cash		$397,950
	(To record purchase of Equipment)

Explanation:-

Explanation-1) The cost of property plant and Equipment is 12,500 shares × $168 = $2,100,000

Land = ($600,000/$3,600,000) × $2,100,000 = $350,000

Building = ($1,800,000/$3,600,000) × $2,100,000 = $1,050,000

Equipment = ($1,200,000/$3,600,000) × $2,100,000 = $700,000

Explanation-2) cash price of Equipment - Cash discount + Freight expense

$390,000 - ($390,000 × 2%) + $15,750

$390,000 - $7,800 + $15,750

$397,950