Question

Hayes 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 $100,000 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 $100,000 $50,000 $50,000 $90,000 Equipment 60,000 10,000 50,000 30,000 Asset 3: This machine was acquired by making a $10,000 down payment and issuing a $30,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $15,000 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $35,900. 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 $100,000 Accumulated depreciation to date of sale 40,000 Fair value of machinery traded 80,000 Cash received 10,000 Fair value of machinery acquired 70,000 Asset 5: Equipment was acquired by issuing 100 shares of $8 par value common stock. The stock had a market price of $11 per share. Construction of Building: A building was constructed on land purchased last year at a cost of $150,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows. Date Payment 2/1 $120,000 6/1 360,000 9/1 480,000 11/1 100,000 To finance construction of the building, a $600,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 8%. Record the acquisition of each of these assets.

Answer 1