Question

Exercise 10-16 Crane Industries purchased the following assets and constructed a building as well. All this was done during the current year. Assets 1 and 2: These assets were purchased as a lump sum for $290,000 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 Machinery $290,000 $145,000 $145,000 $261,000 Equipment 174,000 29,000 145,000 87,000 Asset 3: This machine was acquired by making a $29,000 down payment and issuing a $87,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $43,500 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $104,110. Asset 4: This machinery was acquired by trading in used machinery. (The exchange lacks commercial substance.) Facts concerning the trade-in are as follows. Cost of machinery traded $290,000 Accumulated depreciation to date of sale 116,000 Fair value of machinery traded 232,000 Cash received 29,000 Fair value of machinery acquired 203,000 Asset 5: Equipment was acquired by issuing 100 shares of $23 par value common stock. The stock had a market price of $32 per share. Construction of Building: A building was constructed on land purchased last year at a cost of $435,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows. Date Payment 2/1 $348,000 6/1 1,044,000 9/1 1,392,000 11/1 290,000 To finance construction of the building, a $1,740,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $580,000 of other outstanding debt during the year at a borrowing rate of 8%. Record the acquisition of each of these assets. (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.) Account Titles and Explanation Debit Credit Acquisition of Assets 1 and 2 Acquisition of Asset 3 Acquisition of Asset 4 Acquisition of Asset 5 (To record acquisition of Office Equipment)

Answer 1

1. To record acquisition of assets 1 & 2
Account Title	Debit	Credit
Machinery	217500
Equipment	72500
Cash		290000

Working:

	Appraised Value
			Machinery	261000	75%
Equipment	87000	25%
Total	348000
Total amount Paid	290000
Apportionment of the payment
Machinery	217500
Equipment	72500
Total	290000

2. To record acquisition of asset no.3
Account Title	Debit	Credit
Machinery	116000
Cash		29000
Note Payable		87000

2. To record acquisition of asset no.4
Account Title	Debit	Credit
Machinery	203000
Acumulated Depreciation	116000
Cash	29000
Machinery - old		232000
Gain on trade in		116000

4. Construction of building
Account Title	Debit	Credit
Building	3230600
Interest payable		156600
Cash		3074000
Payments for construction
Date	Amount
Feb.1	348000
June.1	1044000
Sept.1	1392000
Nov.1	290000
Total	3074000
As the loan was taken for construction, the interest
due on the loan is to be capitalized.
Interest = 1,740,000 x 12% x 9/12 (9 months)