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645873

1. Natchez Industries acquired land, buildings, and equipment for $680,000 and recorded the assets at the lower of book or appraised values by allocating the purchase price proportionately based on the appraised values. 2. Arawak Enterprises purchased equipment with a $2,000 down payment and a $23,000 note payable and recorded the equipment at the purchase price. 3. Ace Company recorded equipment at $20,000 when it paid for the purchase despite intending to take a 2/10, n/30 discount, which it will record later.

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769 views

645873

1. Natchez Industries acquired land, buildings, and equipment for $680,000 and recorded the assets at the lower of book or appraised values by allocating the purchase price proportionately based on the appraised values. 2. Arawak Enterprises purchased equipment with a $2,000 down payment and a $23,000 note payable and recorded the equipment at the purchase price. 3. Ace Company recorded equipment at $20,000 when it paid for the purchase despite intending to take a 2/10, n/30 discount, which it will record later.

Uploaded by

mohitgaba19
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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(Correction of Improper Cost Entries) Plant acquisitions for selected companies are presented below and

on the next page.


1. Natchez Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Vivace Co.,
for a lump-sum price of $680,000. At the time of purchase, Vivace’s assets had the following book and
appraisal values.

Land
Buildings
Equipment
To be conservative, the company decided to take the lower of the two values for each asset acquired.
The following entry was made.
Land
Buildings
Equipment
Cash
2. Arawak Enterprises purchased store equipment by making a $2,000 cash down payment and signing a
1-year, $23,000, 10% note payable. The purchase was recorded as follows.
Equipment
Cash
Notes Payable
Interest Payable
3. Ace Company purchased office equipment for $20,000, terms 2/10, n/30. Because the company
intended to take the discount, it made no entry until it paid for the acquisition. The entry was:
Equipment
Cash
Purchase Discounts
4. Paunee Inc. recently received at zero cost land from the Village of Cardassia as an inducement to
locate its business in the Village. The appraised value of the land is $27,000. The company made no entry
to record the land because it had no cost basis.
5. Mohegan Company built a warehouse for $600,000. It could have purchased the building for $740,000.
The controller made the following entry.
Buildings
Cash
Profit on Construction
Instructions
Prepare the entry that should have been made at the date of each acquisition.
Book   Values Appraisal   Values Answer 1
$200,000   150000 Appraisal   Values
230,000   350,000   Land $ 150,000
300,000   300,000   Buildings $ 350,000

Equipment $ 300,000
150,000   $ 800,000
230,000  
300,000 JOURNAL ENTRY
680,000   Land $ 127,500

Buildings $ 297,500
27,300 Equipment $ 255,000
2,000 Cash
23,000
2,300   Answer 2

Equipment $ 250,000
20,000 Cash
19,600 Notes Payable
400

Interest will be recorded after a year

Answer 3
740,000 Equipment $ 20,000
600,000   Accounts Payable
140,000  
Discount will be recorded at the time of payment

Answer 4
The land will be recorded at fair value and credit will be donated capital as it ha

Land $ 27,000
Donated Capital

Answer 5
Buildings $ 600,000
Cash
Warehouse will be recorded at the cost at which it is built.
Proportion Purchase cost
18.75% ($ 150,000/$ 800,000 * 100) $ 127,500 (18.75 % * $ 680,000)
43.75% ($ 350,000/$ 800,000 * 100) $ 297,500 (43.75 % * $ 680,000)

37.50% ($ 300,000/$ 800,000 * 100) $ 255,000 (37.50 % * $ 680,000)

$ 680,000

$ 2,000
$ 23,000

$ 20,000

l be donated capital as it has been received at zero cost.

$ 27,000

$ 600,000

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