Question

143. A company's old machine that cost $59,000 and had accumulated depreciation of $47,100 was traded in on a new machine having an estimated 20-year life with an invoice price of $70,900. The company also paid $60,100 cash, along with its old machine to acquire the new machine. If this transaction has commercial substance, the new machine should be recorded at:

143B. A company issued 7.0%, 5-year bonds with a par value of $160,000. The market rate when the bonds were issued was 8.0%. The company received $153,511.28 cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is:

143C.Farmer and Taylor formed a partnership with capital contributions of $280,000 and $330,000, respectively. Their partnership agreement calls for Farmer to receive a $86,000 per year salary. The remaining income or loss is to be divided equally. If the net income for the current year is $231,000, then Farmer and Taylor's respective shares are:

143D. Riverboat Adventures pays $460,000 plus $9,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $81,600, a building appraised at $172,800, and paddleboats appraised at $225,600. Compute the cost that should be allocated to the building.

Answer 1

Answer 143.
Value of New Machine:
Cash Paid		60,100.00
Book Value of Old Machine exchanged:
Cost of Old Machine	59,000.00
Accumulated Depreciation	(47,100.00)	11,900.00
Value of New Machine		72,000.00
But the New Machine invoice price (or fair market value) is $70,900.
So, the Value of New Machine id $70,900 anf the balance amount of $1,100 ($72,000 - $70,900) will be treated as Loss on Disposal.

Answer 143B.
Discount Amortization Schedule
Date	Interest Paid - $160,000 X 7% X 6/12	Interest Expense - Preceeding Bond Carrying Value X 8% X 6/12	Discount Amortization	Unamortized Discount	Bonds Carrying Amount
	A	B	C = B - A	D = D - C	E = $160,000 - D
0	-	-	-	6,488.72	153,511.28
1	5,600.00	6,140.45	540.45	5,948.27	154,051.73
2	5,600.00	6,162.07	562.07	5,386.20	154,613.80
Interest Expense - second semiannual interest period = $6,162.07

Answer 143C.
	Farmer	Taylor	Total
Net Income			231,000.00
Salary paid to Farmer	-	86,000.00	86,000.00
Balance			145,000.00
Profit - Divided Equally	72,500.00	72,500.00	145,000.00
Total Profit	72,500.00	158,500.00

Answer 143D.
Total Amount paid = $460,000 + $9,000 = $469,000
	Fair Value	Percentage	Allocated Cost
Land	81,600.00	17%	79,730.00
Building	172,800.00	36%	168,840.00
Paddleboats	225,600.00	47%	220,430.00
Total	480,000.00		469,000.00
Cost to be Allocated to Building = $168,840