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Problem #5 - Long-term asset acquisitions A. On January 1, 20x1, Bones Corp. acquired equipment by signing a noninterest bearing note payable with a
Problem #5 - Long-term asset acquisitions A. On January 1, 20x1, Bones Corp. acquired equipment by signing a noninterest bearing note payable with a lumpsum of $700,000 due in 3 years. The present value of the note discounted at a 5% rate is $604,686. The company paid $5,000 cash to have the equipment delivered to its place of business and $15,000 cash for special installation costs. Personnel were required to be trained to use the machinery for the purposes of the business at a cost of $2,000 cash and trial-runs to ensure quality cost the business $500. Provide the entry(ies) to acquire and put the machine to use in operations as well as any year-end entry needed to properly adjust the note. B. On January 1, 20x2, Flint Inc. purchased rights to drill for oil. The costs of the purchase included attorney fees of $1,000 to examine the contract for these rights as well as $1,500,000 as the agreed upon price. Flint paid these costs in cash. As part of the purchase, Flint is obligated to restore the land once drilling is finished (projected in 10 years time). Flint estimates the obligation at a future sum of $600,000, the present value of the obligation at a 3% risk-free adjusted rate is $446,456. Once purchased, the company needed to discover the most appropriate drilling site, requiring cash expenditures of $6,000. Costs to harvest the oil included $150,000 paid in cash. Provide the entry(ies) to acquire the resource as well as any year-end entry needed to properly adjust accounts. C. A company facilitated the purchase of land by issuing 100,000 shares of its own $5 par value common stock. The stock is publicly and actively traded at $40 a share. The land has an appraised value of $3,500,000 according to tax records. The company also paid $2,000 in title insurance fees and $1,000 in commissions to settle the contract, paying these costs with cash. In addition, the land required grading and filling that cost $10,000 cash. Certain nonpermanent improvements were also made at a total cost of $50,000 cash. Provide the entry(ies) to acquire the land to use in operations.
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