Plant acquisitions for selected companies are as follows:

1. Bella Industries Inc acquired land, buildings, and equipment from a bankruptcy company, Torres Co., for a lump-sum price of $700 000. At the time of purchase, Torres assets had the following book and appraisal values:

Book Value Appraisal Value

Land $200 000 $150 000

Buildings $250 000 $350 000

Equipment $300 000 $300 000

Bella Industries decided to take the lower of the two values for each asset it acquired. The following entry was made

Land 150 000

Buildings 250 000

Equipment 300 000

Cash 700 000

Bella Industries expects the building to last another 20 years, however, it expects that it will have to replace the roof in the next 5 years. Torres CO. indicated that, on initial construction of the building, the roof amounted to 20% of the cost of the building. In meetings with contractors, because of the unique design and materials required to replace the roof, the contractors stated that the roof structure is currently worth 15% of the value of the building purchase.

2. Hari Enterprises purchased store equipment by making $2 000, cash down payment and signing a $23 000, one-year, 10% note payable. The purchase was recorded as follows:

Store Equipment 27 300

Cash 2 000

Notes Payable 23 000

Interest Payable 2 300

3. Kim 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:

Office Equipment 20 000

Cash 19 600

Purchase Discounts 400

4. Kaiser Inc. recently received land at zero cost from the Village of Chester as an inducement to locate its business in the village. The lands appraised value was $27 000. The company made no entry to record the land because it has no cost basis.

5. Zimmerman Company built a warehouse for $600 000. It could have contracted out and purchased the building for $740 000. The controller made the following entry:

Buildings 740 000

Cash 600 000

Gain 140 000

Instructions:

a. Prepare the entry that should have been made at the date of each acquisition. Round to the nearest dollar.

b. Prepare the correcting entry that is required in each case to correct the accounts. In other words, do not simply revers the incorrect entry and replace it with the entry in part a

c. List the accounting principle, assumption or constraint from the conceptual framework that has been violated in each case.