Wasatch Bank recently held an auction to dispose of various assets it had obtain
ID: 2424936 • Letter: W
Question
Wasatch Bank recently held an auction to dispose of various assets it had obtained through foreclosures and other loan settlements. Representatives of Aragon Semi-Conductors attended the auction to bid on an abandoned manufacturing plant that Wasatch Bank included in the sale. The auction brochure listed the manufacturing plant as including all land, buildings and equipment. The brochure indicated that an independent appraisal had been conducted and that land was separately valued at $3,500,000, the building at $8,000,000 and the equipment at $14,500,000. This information is believed to be reasonably accurate and fair. Aragon Semi-Conductors wanted the site for a recycling business it planned to start at the location. All of the equipment would be used in this new operation. The minimum bid price was set at $16,250,000. As it turned out, the auction was poorly attended. Aragon was the only bidder on this property, and was fortunate to acquire the property at the opening bid minimum.
Required: Determine the correct cost allocation to the land, buildings and equipment, and prepare a journal entry to reflect this acquisition.
Explanation / Answer
Solution:
Note that assets were acquired at 62.5% of their value (16250000/26000000)
Land Dr...................2187500
Building Dr..............5000000
Equipment Dr..........9062500
To cash..............................................16250000
Fair value Allocation @ 62.5% of fair value Land 3500000 2187500 Building 8000000 5000000 Equipment 14500000 9062500 26000000 16250000Related Questions
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