Chapter 10: Acquisitions and Disposals ONE Lemon Inc. bought equipment by paying $6,000 down and issuing the seller a 3-year, noninterest-bearing note payable in three annual end-of-year installments of $3,000 each, with 5% interest implicit in the purchase price. Lemon paid sales tax on the purchase of $900. Lemon also paid $750 in freight charges to have the machine delivered and another $500 to insure it while in transit. The seller charged Lemon $1,500 for setup and installation at Lemon's factory, although that invoice is still outstanding under a 90-day, interest-free payment plan the Seller provided Lemon under a promotional offer. Wages Lemon paid its plant staff to test the equipment prior to placing it into production totaled $600, and insurance on the machine during its first month of operation was $200. RequiredDetermine the balance that Lemon should report in its "Equipment" account. TWO Lime Company disposed of used machinery that originally cost $80,000 and at the time of disposal carried accumulated depreciation of $70,000. RequiredPrepare the journal entry Lime should have made to record the disposal under each of the following independent assumptions: 1. The machine was destroyed in a plant accident. 2. The machine was damaged in a plant accident; it was not insured, but Lime was able to sell it "as is" for $11,000 after paying $500 to have it delivered to the buyer. 3. The machine was damaged in a plant accident; it was not insured, but Lime was able to sell it "as is" for $9,000 after paying $500 to have it delivered to the buyer. THREE Purple Corp and Pink Corp exchanged used equipment. In negotiating the swap's terms, they agreed that the difference in the machines' fair values would be paid in cash. This information along with the book value of each machine at the time of the exchange is summarized below. Historical cost Accumulated depreciation Fair value Purple 99,000 74,000 21,000 Pink 89,000 75,000 19,000 Required-Prepare the journal entry that each company should make to record the exchange under each of the following independent assumptions: 1. The information available indicates that the exchange has commercial substance. 2. The information available indicates that the exchange lacks commercial substance. Chapter 10: Acquisitions and Disposals ONE Lemon Inc. bought equipment by paying $6,000 down and issuing the seller a 3-year, noninterest-bearing note payable in three annual end-of-year installments of $3,000 each, with 5% interest implicit in the purchase price. Lemon paid sales tax on the purchase of $900. Lemon also paid $750 in freight charges to have the machine delivered and another $500 to insure it while in transit. The seller charged Lemon $1,500 for setup and installation at Lemon's factory, although that invoice is still outstanding under a 90-day, interest-free payment plan the Seller provided Lemon under a promotional offer. Wages Lemon paid its plant staff to test the equipment prior to placing it into production totaled $600, and insurance on the machine during its first month of operation was $200. RequiredDetermine the balance that Lemon should report in its "Equipment" account. TWO Lime Company disposed of used machinery that originally cost $80,000 and at the time of disposal carried accumulated depreciation of $70,000. RequiredPrepare the journal entry Lime should have made to record the disposal under each of the following independent assumptions: 1. The machine was destroyed in a plant accident. 2. The machine was damaged in a plant accident; it was not insured, but Lime was able to sell it "as is" for $11,000 after paying $500 to have it delivered to the buyer. 3. The machine was damaged in a plant accident; it was not insured, but Lime was able to sell it "as is" for $9,000 after paying $500 to have it delivered to the buyer. THREE Purple Corp and Pink Corp exchanged used equipment. In negotiating the swap's terms, they agreed that the difference in the machines' fair values would be paid in cash. This information along with the book value of each machine at the time of the exchange is summarized below. Historical cost Accumulated depreciation Fair value Purple 99,000 74,000 21,000 Pink 89,000 75,000 19,000 Required-Prepare the journal entry that each company should make to record the exchange under each of the following independent assumptions: 1. The information available indicates that the exchange has commercial substance. 2. The information available indicates that the exchange lacks commercial substance
