Hayes 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 $100,000 cash. The following information was gathered

Asset 3: This machine was acquired by making a $10,000 down payment and issuing a $30,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $15,000 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $35,900.

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 ……………………........… $100,000

Accumulated depreciation to date of sale ………... 40,000

Fair value of machinery traded …………......…….…… 80,000

Cash received …………………………………….................. 10,000

Fair value of machinery acquired ……………......…… 70,000

Asset 5: Equipment was acquired by issuing 100 shares of $8 par value common stock. The stock had a market price of $11 per share.

Construction of Building: A building was constructed on land purchased last year at a cost of $150,000.

Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows.

Date               Payment

2/1 ………….… $120,000

6/1 ………….….. 360,000

9/1 ……………... 480,000

11/1 ……………. 100,000

To finance construction of the building, a $600,000, 12% construction loan was taken out on February 1.

The loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 8%.

Instructions

Record the acquisition of each of these assets.

Transcribed Image Text:

Description Machinery Equipment Initial Cost on Seller's Books $100,000 Depreciation to Date on Seller's Books $50,000 10,000 Book Value on Seller's Books $50,000 50,000 Appraised Value $90,000 30,000 60,000