Question

1.Calaveras Tire exchanged equipment for two pickup trucks. The book value and fair value of the equipment given up were $36,000 (original cost of $89,000 less accumulated depreciation of $53,000) and $48,000, respectively. Assume Calaveras paid $7,000 in cash and the exchange lacks commercial substance.

At what amount will Calaveras value the pickup trucks? How much gain or loss will the company recognize on the exchange?

Value of Pick Up Trucks=

Gain/Loss=

2.Calaveras Tire exchanged equipment for two pickup trucks. The book value and fair value of the equipment given up were $31,000 (original cost of $81,500 less accumulated depreciation of $50,500) and $22,500, respectively. Assume Calaveras paid $8,500 in cash and the exchange has commercial substance.

At what amount will Calaveras value the pickup trucks? How much gain or loss will the company recognize on the exchange?

Value of Pick Up Trucks=

Gain/Loss=

3.Pro-tech Software acquired all of the outstanding stock of Reliable Software for $17 million. The book value of Reliable’s net assets (assets minus liabilities) was $8.6 million. The fair values of Reliable’s assets and liabilities equaled their book values with the exception of certain intangible assets whose fair values exceeded book values by $2.8 million.

Calculate the amount paid for goodwill.

4.Fullerton Waste Management purchased land and a warehouse for $610,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: broker’s commission, $31,000; title insurance, $3,500; miscellaneous closing costs, $6,500. The warehouse was immediately demolished at a cost of $19,000 in anticipation of the building of a new warehouse.

Determine the amounts Fullerton should capitalize as the cost of the land and the building.

Capatalized Cost Of Land=

Capatalized Cost of Buidling =

5.

A company purchased land, a building, and equipment for one price of $1,550,000. The estimated fair values of the land, building, and equipment are $193,750, $1,356,250, and $387,500, respectively. At what amount would the company record the land?

• $193,750

• $155,000

• $1,550,000

• $165,000

Answer 1

Answer (1):-

The value of pickup trucks is calculated as follows:

Value of pickup trucks=Fairvalueofmachinery+Cashpaid

   =$48,000+$7,000

   =$55,000

Therefore, value of pickup trucks is $55,000.

The Calaveras Company will value the pickup trucks at $55,000

The gain the Calaveras Company recognises on exchange is calculated as follows:

Gain on exchange=Fair value of machinery−Book value of machinery

   = $48,000 - $36,000

   = $12,000

The Calaveras Company recognises a gain of $12,000 on the exchange.

Answer (2):-

The value of pickup trucks is calculated as follows:

Value of pickup trucks=Fairvalueofmachinery+Cashpaid

   =$22,500+$8,500

   =$31,000

Therefore, value of pickup trucks is $31,000.

The Calaveras Company will value the pickup trucks at $31,000

The gain the Calaveras Company recognises on exchange is calculated as follows:

Gain(Loss) on exchange=Fair value of machinery−Book value of machinery

   = $22,500 - $31,000

   = ($8,500)

The Calaveras Company recognises a loss of $8,500 on the exchange

Answer (3):-

Calculate the total value of net assets:

Book value of net assets $8,600,000

Add:- Excess of fair value over book value $2,800,000

of intangible assets

Total value of assets    $11,400,000

Calculate the amount for goodwill:

Purchase Price $17,000,000

Less:- Total value of assets    $11,400,000

Total value of goodwill    $5,600,000

Answer (4):-

Capitalized cost of land:

Purchase price	$610,000
Broker’s commission	$31,000
Title insurance	$3,500
Miscellaneous closing costs	$6,500
Demolition of old building	$19,000
Total cost	$670,000

All of the expenditures, including the costs to demolish the old building, are included in the initial cost of the land.

Capitalized cost of land = $670,000

Capitalized cost of building = $0

Answer 5 :-

Total Consideration: 1,550,000
Assets	Fair value	% of    Total	Consideration apportioned
Land	193,750	10%	155,000
Building	1,356,250	70%	1,085,000
Equipment	387,500	20%	310,000
TOTAL	1,937,500	100%	1,550,000
Land is recorded at $ 155,000.