Question 30

Blossom Industries Corp. purchased the following assets and also constructed a building. All this was done during the current year using a variety of financing alternatives. Assets 1 and 2 These assets were purchased together for $110,000 cash. The following information was gathered:

Description		Initial Cost on Sellers Books			Depreciation to Date on Sellers Books		Book Value on Sellers Books		Appraised Value
Machinery			$110,000		$51,000		$59,000		$90,000
Equipment			61,000		10,000		51,000		30,000

Asset 3 This machine was acquired by making a $9,000 down payment and issuing a $29,000, two-year, zero-interest-bearing note. The note is to be paid off in two $14,500 instalments made at the end of the first and second years. It was determined that the asset could have been purchased outright for $34,000. Asset 4 A truck was acquired by trading in an older truck that has the same value in use. The newer truck has options that will make it more comfortable for the driver; however, the company remains in the same economic position after the exchange as before. Facts concerning the trade-in are as follows:

Cost of truck traded		$100,000
Accumulated depreciation to date of exchange		35,000
Fair market value of truck traded		79,000
Cash paid by Blossom		9,000
Fair market value of truck acquired		69,000

Asset 5 Equipment was acquired by issuing 100 common shares. The shares are actively traded and had a closing market price a few days before the equipment was acquired of $10 per share. Alternatively, the equipment could have been purchased for a cash price of $975. Construction of Building A building was constructed on land that was purchased January 1 at a cost of $140,000. Construction began on February 1 and was completed November 1. The payments to the contractor were as follows:

Date		Payment
Feb. 1		$110,000
June 1		360,000
Sept. 1		480,000
Nov. 1		100,000

To finance construction of the building, a $580,000, 12% construction loan was taken out on February 1. At the beginning of the project, Blossom invested the portion of the construction loan that was not yet expended and earned investment income of $4,000. The loan was repaid on November 1 when the construction was completed. The firm had $190,000 of other outstanding debt during the year at a borrowing rate of 9% and a $190,000 loan payable outstanding at a borrowing rate of 6%.

Blossom uses a variety of alternatives to finance its acquisitions. Record the acquisition of each of these assets, assuming that Blossom prepares financial statements in accordance with IFRS. Use the net amount to record the note. (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. Round capitalization rate to 2 decimal places, e.g. 52.75% and final answers to 0 decimal places, e.g. 5,275.)

Account Titles and Explanation	Debit	Credit
Acquisition of Assets 1 and 2
Acquisition of Asset 3
Acquisition of Asset 4
Acquisition of Asset 5
Construction of Building

SHOW LIST OF ACCOUNTS

What was the effective interest rate used in negotiating the note payable used to acquire the machinery in Asset 3? Use Excel or a financial calculator to arrive at your answer. (Round final answer to 3 decimal places, e.g. 1.234%.)

Effective interest rate

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