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Culver Company, a manufacturer of ballet shoes, is experiencing a period of sustained growth. In an effort to expand its production capacity to meet
Culver Company, a manufacturer of ballet shoes, is experiencing a period of sustained growth. In an effort to expand its production capacity to meet the increased demand for its product, the company recently made several acquisitions of plant and equipment. Rob Joffrey, newly hired in the position of fixed-asset accountant, requested that Danny Nolte, Culver's controller, review the following transactions. Transaction 1: On June 1, 2020, Culver Company purchased equipment from Wyandot Corporation. Culver issued a $26,800, 4-year, zero-interest-bearing note to Wyandot for the new equipment. Culver will pay off the note in four equal installments due at the end of each of the next 4 years. At the date of the transaction, the prevailing market rate of interest for obligations of this nature was 11%. Freight costs of $392 and installation costs of $500 were incurred in completing this transaction. The appropriate factors for the time value of money at a 11% rate of interest are given below. Future value of $1 for 4 periods 1.52 Future value of an ordinary annuity for 4 periods 4.71 Present value of $1 for 4 periods 0.66 Present value of an ordinary annuity for 4 periods 3.10 Transaction 2: On December 1, 2020, Culver Company purchased several assets of Yakima Shoes Inc., a small shoe manufacturer whose owner was retiring. The purchase amounted to $211,000 and included the assets listed below. Culver Company engaged the services of Tennyson Appraisal Inc., an independent appraiser, to determine the fair values of the assets which are also presented below. Yakima Book Value Fair Value Inventory $63,700 $53,000 Land 42,100 79,000 Buildings 71,900 118,000
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