Handout 10 Intermediate Accounting presented below are unrelated transactions fo
ID: 2470964 • Letter: H
Question
Handout 10
Intermediate Accounting
presented below are unrelated transactions for the acquisition of plant assets for Pierre Perfume Corp. For the current year.
(1) Pierre acquired a machine with a list price of $230,000 on May 1 of the current year. To acquire this machine, Pierre exchanged 7,000 shares of its $10.00 par common stock, and paid cash of $60,000. The stock of Pierre was selling for $21.00 per share on May 1.
(2) A used truck costing$25000 with a book value of $7000 is exchanged for a new truck with a fair market value of $13,500 and $9,000 cash is paid by Pierre. Assume that the assets exchanged are similar productive assets.
(3) Used machinery having a fair market value of $28,000 and cash of $12,000 is received in exchange for a newer piece of machinery having an original cost on Pierre s books of $37,000 and accumulated depreciation of $13,000. Assume that the assets exchanged are dissimilar productive assets.
(4) Pierre purchased land and building for $150,000. Pierre signed a note for $100,000 at 12% interest(principal and interest are due in one year) to finance part of the purchase. The property was appraised for tax purposes as following: Land, $36,000 and building, $90,000. It is decided that the tax appraisals are reasonable estimates of the relative fair values of the land and building.
(5) An old computer has an original cost of $90,000 with accumulated depreciation of $37,000. The fair market value of the old computer is $75,000. A new computer having a fair market value of $135,000 is obtained by playing $60,000 cash and trading in the old computer. Assume that the assets exchanged are considered similar in nature.
Required: Prepare the general journal entries necessary to record the above transactions for the current year. Show all appropriate computations.
Explanation / Answer
Date Account title & Explanations Debit Credit 1-May equipment 207000 (60000+21*7000) common stock 70000 paid in capital in excess of par-common stock 77000 cash 60000 (acquisition of machinery by issue of 7000 common stock shares and cash) trucks (for new truck) 13500 accumulated depreciation-trucks 18000 (cost 25000 - BV 7000) loss on sale of truck 2500 (amount received for old truck = 13500-9000=4500; loss = BV 7000-4500) cash 9000 truck (for old truck) 25000 (to record exchange of old truck for new truck) machinery 28000 cash 12000 accumulated depreciation 13000 machinery 37000 gain on disposal of machinery 16000 (amount received 28000+12000 - BV 37000-13000) (to record exchange of machinery) land 42857 (150000*36000/(36000+90000) building 107143 (150000*90000/(36000+90000) cash 50000 notes payable 100000 (to record purchase of property) note: it is presumed that the balance of $50000 is paid in cash) computer (new) 122778 (135000-balance of gain22000-9778) accumulated depreciation-computer 37000 cash 60000 computer (old) 90000 gain on disposal of computer 9778 (to record exchange of computers) Since boot of 60000 is received and the assets are similar, only realised gain is accounted ; gain = 75000-BV53000 = 22000. Proportionate gain = 22000*60000/135000 = 9778
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