E10-16B (Asset Acquisition) Ogden Industries purchased the following assets and constructed a…

E10-16B (Asset Acquisition) Ogden Industries purchased the following assets and constructed a building as well. All this was done during the current year.

Assets 1 and 2

These assets were purchased as a lump sum for $186,000 cash. The following information was gathered.

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Depreciation to

                                  Initial Cost on             Date on Seller’s             Book Value on

Description                    Seller’s                  Books Books               Seller’s Books            Appraised Value

Machinery               $65,000                       $30,000                             $35,000                       $160,000

Office furniture         25,000                         10,000                               15,000                           40,000

Asset 3

This machine was acquired by making a $25,000 down payment and issuing a $75,000, 1-year, zero-interestbearing

note. The note is to be paid off in at the end of the first year. It was estimated that the asset could

have been purchased outright for $91,000.

Asset 4

This machinery was acquired by trading in used machinery. (The exchange lacks commercial substance.)

Facts concerning the trade-in are as follows.

Cost of machinery traded $150,000

Accumulated depreciation to date of sale 60,000

Fair value of machinery traded 96,000

Cash received 20,000

Fair value of machinery acquired 76,000

Asset 5

Machinery was acquired by issuing 1,000 shares of $1 par value common stock. The stock had a market value of $7 per share.

Construction of Building

A building was constructed on land purchased last year at a cost of $120,000. Construction began on March 1 and was completed on September 1. The payments to the contractor were as follows.

Date     Payment

3/1        $200,000

5/1         300,000

6/1        100,000

9/1        400,000

To finance construction of the building, a $600,000, 10% construction loan was taken out on March 1.

The loan was repaid on September 1. The firm had $400,000 of other outstanding debt during the year at

a borrowing rate of 12%.

Instructions

Record the acquisition of each of these assets.

 

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