In: Accounting
Blossom Industries Corp. purchased the following assets and also
constructed a building. All this was done during the current
year.
Assets 1 and 2
These assets were purchased together for $124,000 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 | $111,000 | $53,000 | $58,000 | $90,000 | |||||
Office Equipment | 62,000 | 10,000 | 52,000 | 30,000 |
Asset 3
This machine was acquired by making a $10,200 down payment and
issuing a $39,000, two-year, zero-interest-bearing note. The note
is to be paid off in two $19,500 instalments made at the end of the
first and second years. It was determined that the asset could have
been purchased outright for $34,200.
Asset 4
A truck was acquired by trading in an older truck that has the same
value in use. The newer truck has options that will make it more
comfortable for the driver; however, the company remains in the
same economic position after the exchange as before. Facts
concerning the trade-in are as follows:
Cost of truck traded | $108,000 | |
Accumulated depreciation to date of sale | 38,000 | |
Fair market value of truck traded | 87,000 | |
Cash paid by Blossom | 9,200 | |
Fair market value of truck acquired | 70,000 |
Asset 5
Office equipment was acquired by issuing 160 common shares. The
shares are actively traded and had a closing market price a few
days before the office equipment was acquired of $10 per share.
Alternatively, the office equipment could have been purchased for a
cash price of $1,575.
Construction of Building
A building was constructed on land that was purchased on January 1
at a cost of $146,000. Construction began on February 1 and was
completed November 1. The payments to the contractor were as
follows:
Date | Payment | |
Feb. 1 | $120,000 | |
June 1 | 353,000 | |
Sept. 1 | 476,000 | |
Nov. 1 | 105,000 |
To finance construction of the building, a $617,000, 13%
construction loan was taken out on February 1. At the beginning of
the project, Blossom invested the portion of the construction loan
that was not yet expended and earned investment income of $4,600.
The loan was repaid on November 1 when the construction was
completed. The firm had $204,000 of other outstanding debt during
the year at a borrowing rate of 10% and a $202,000 loan payable
outstanding at a borrowing rate of 6%.
(a)
Blossom uses a variety of alternatives to finance its acquisitions.
Record the acquisition of each of these assets, assuming that
Blossom prepares financial statements in accordance with IFRS. Use
the net amount to record the note. (Credit account
titles are automatically indented when the 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. Round
capitalization rate to 2 decimal places, e.g. 52.75% and final
answers to 0 decimal places, e.g. 5,275.)
Account Titles and Explanation |
Debit |
Credit |
Acquisition of Assets 1 and 2 __________________ __________________ ___________________ Acquisition of Asset 3 ____________________ _____________________ ____________________ Acquisition of Asset 4 ___________________ ____________________ _____________________ ____________________ Acquisition of Asset 5 ____________________ _____________________ Construction of Building ____________________ ____________________ _____________________ _____________________ |