Vidi Corporation made the following purchases related to its property, plant, and equipment during its fiscal year ended December 31, 2014. The company uses the straight-line method of depreciation for all its capital assets.
1. In early January, Vidi issued 140,000 common shares in exchange for property consisting of land and a warehouse. On the date of acquisition, a reliable, independent appraiser estimated that the fair value of the land and warehouse was $600,000 and $300,000, respectively. The seller had advertised a price of $860,000 or best offer for the land and warehouse in a commercial retail magazine. Vidi paid a local real estate broker a finder's fee of $35,000. The most recent sale of Vidi's shares took place last month when 15,000 common shares were sold for $9 per share.
2. On March 31, the company acquired equipment on credit. The terms were a $7,000 cash down payment plus payments of $5,000 at the end of each of the next two years. The implicit interest rate was 12%. The equipment's list price was $17,000. Additional costs that were incurred to install the equipment included $1,000 to tear down and replace a wall, and $1,500 to rearrange existing equipment to make room for the new equipment. An additional $500 was spent to repair the equipment after it was dropped during installation. During the year, the following events also occurred:
3. A new motor was purchased for $50,000 for a large grinding machine (original cost of the machine, $350,000; accumulated depreciation at the replacement date, $100,000). The motor will not improve the quality or quantity of production; however, it will extend the grinding machine's useful life from the current eight years to 10 years.
4. On September 30, the company purchased a small building in a nearby town for $125,000 to use as a display and sales location. The municipal tax assessment indicated that the property was assessed for 595,000, which consists of $68,000 for the building and $27,000 for the land. The building had been empty for six months and required considerable maintenance work before it could be used. The following costs were incurred in 2014 prior to moving into the building: previous owner~ unpaid property taxes on the property for the previous year, $900; current year's
(2014) taxes, $1,000; reshingling of roof, $2,200; cost of hauling refuse out of the basement, $230; cost of spray cleaning the outside walls and washing windows, $750; cost of painting inside walls, $3,170; and incremental fire and liability insurance for 15 months, $940.
5. The company repaired the plumbing system in its factory for $35,000. The original plumbing costs were not known.
6. On June 30, the company replaced a freezer with a new one that cost $20,000 cash (fair value of $21,000 for the new freezer less trade-in value of old freezer). The cost of the old freezer was $ 15,000. At the beginning of the year, the company had depreciated 60% of the old freezer; that is, 10% per year of use.
7. The company painted the factory exterior at a cost of $ 12,000.
Instructions
(a) Prepare the journal entries that are required to record the acquisitions and/or costs incurred in the above transactions.
(b) If there are alternative methods to account for any of the transactions, indicate what the alternatives are and your reason for choosing the method that you used.