Question
Plant acquisitions for selected companies are as follows: 1. Sandhill Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a
Plant acquisitions for selected companies are as follows:
1. Sandhill Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a lump-sum price of $720,000. At the time of purchase, Torres's assets had the following book and appraisal values:
Book Value
Appraisal Value
Land $210,000 $140,000
Buildings 248,000 349,000
Equipment 332,000 332,000
Sandhill Industries decided to take the lower of the two values for each asset it acquired. The following entry was made:
Land
140,000
Buildings
248,000
Equipment
332,000
Cash
720,000
Sandhill Industries expects the building structure to last another 20 years; however, it expects that it will have to replace the roof in the next five years. Torres Co. indicated that, on initial construction of the building, the roof amounted to 20% of the cost of the building. Because of the unique design and materials needed to replace the roof, the contractors stated that the roof structure is currently worth 16% of the value of the building purchase.
2. Hari Enterprises purchased equipment by making a $1,700 cash down payment and signing a $28,700, one-year, 12% note payable. The purchase was recorded as follows:
Equipment
33,844
Cash 1,700
Notes Payable 28,700
Interest Payable 3,444
3. Kim Company purchased equipment for $26,300, 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 26,300
Cash 25,774
Purchase Discounts 526
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 land's appraised value was $32,900. The company made no entry to record the land because it had no cost basis.
5. Zimmerman Company built a warehouse for $599,000. It could have contracted out and purchased the building for $753,000. The controller made the following entry:
Buildings 753,000
Cash 599,000
Sales Revenue
154,000
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