Question
Sheridan Industries Corp. purchased the following assets and also constructed a building. All this was done during the current year using a variety of financing
Sheridan 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 $112,000 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 | $125,000 | $55,000 | $70,000 | $96,000 | |||||
Equipment | 63,000 | 10,000 | 53,000 | 32,000 |
Asset 3 This machine was acquired by making a $9,500 down payment and issuing a $30,000, two-year, zero-interest-bearing note. The note is to be paid off in two $15,000 instalments made at the end of the first and second years. It was determined that the asset could have been purchased outright for $34,200. 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 | $105,000 | |
Accumulated depreciation to date of exchange | 35,000 | |
Fair market value of truck traded | 89,000 | |
Cash paid by Sheridan | 9,900 | |
Fair market value of truck acquired | 72,000 |
Asset 5 Equipment was acquired by issuing 160 common shares. The shares are actively traded and had a closing market price a few days before the equipment was acquired of $11 per share. Alternatively, the equipment could have been purchased for a cash price of $1,735. Construction of Building A building was constructed on land that was purchased January 1 at a cost of $142,000. Construction began on February 1 and was completed November 1. The payments to the contractor were as follows:
Date | Payment | |
Feb. 1 | $121,000 | |
June 1 | 372,000 | |
Sept. 1 | 486,000 | |
Nov. 1 | 101,000 |
To finance construction of the building, a $604,000, 14% construction loan was taken out on February 1. At the beginning of the project, Sheridan 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 $204,000 of other outstanding debt during the year at a borrowing rate of 10% and a $206,000 loan payable outstanding at a borrowing rate of 6%.
(a)
Sheridan uses a variety of alternatives to finance its acquisitions. Record the acquisition of each of these assets, assuming that Sheridan prepares financial statements in accordance with IFRS. Use the net amount to record the note. (
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