(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.
|
|
Book Values |
Appraisal Values |
|
Land |
$200,000 |
$150,000 |
|
Buildings |
230,000 |
350,000 |
|
Equipment |
300,000 |
300,000 |
To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made.
|
Land |
150,000 |
|
|
Buildings |
230,000 |
|
|
Equipment |
300,000 |
|
|
Cash |
|
680,000 |
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 |
27,300 |
|
|
Cash |
|
2,000 |
|
Notes Payable |
|
23,000 |
|
Interest Payable |
|
2,300 |
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 |
20,000 |
|
|
Cash |
|
19,600 |
|
Purchase Discounts |
|
400 |
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 |
740,000 |
|
|
Cash |
|
600,000 |
|
Profit on Construction |
|
140,000 |
Instructions
Prepare the entry that should have been made at the date of each acquisition.