Question
On July 1, 2020,LucasLtd., a publicly listed company, acquired assets fromJaredLtd. On the transaction date, a reliable, independent valuator assessed the fair values of these
On July 1, 2020,LucasLtd., a publicly listed company, acquired assets fromJaredLtd. On the transaction date, a reliable, independent valuator assessed the fair values of these assets as follows:
Manufacturing plant (building #1)$400,000Storage warehouse (building #2)210,000Machinery (in building #1)75,000Machinery (in building #2)45,000
The buildings are owned by the company, and the land that the buildings are situated on is owned by the local municipality and is provided free of charge to the owner of the buildings to encourage local employment.
In exchange for the acquisition of these assets,Lucasissued156,000common shares.Lucas's shares are thinly traded (that is, traded in relatively low volume leading to more volatile price changes than most public companies). In the most recent sale ofLucas's shares on the Toronto Stock Exchange,1,000shares were sold for $5per share. At the time of acquisition, both buildings were considered to have an expected remaining useful life of10years, the machinery in building #1 was expected to have a remaining useful life of3years, and the machinery in building #2 was expected to have a useful life of9years.Lucasuses straight-line depreciation with no residual values.
At December 31, 2020,Lucas's fiscal year end,Lucasrecorded the correct depreciation amounts for the six months that the assets were in use. An independent appraisal concluded that the assets had the following fair values:
Manufacturing plant (building #1)$387,000Storage warehouse (building #2)178,000
At December 31, 2021,Lucasonce again retained an independent appraiser and determined that the fair value of the assets was:
Manufacturing plant (building #1)$340,000Storage warehouse (building #2)160,000
(a)
Prepare the journal entries required for 2020 and 2021, assuming that the buildings are accounted for under the revaluation model (using the asset adjustment method), and that the machinery is accounted for under the cost model.(Credit account titles are automatically indented when the amount is entered.Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record the amounts for Building #1 and #2 and for Machinery seperately. Do not combine these amounts. Round answers to 0 decimal places, e.g. 5,275.)
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