Quartech Enterprises manufactures and distributes thermostats for major kitchen appliances. At the beginning of the current year, Quartech decided to expand its operations by acquiring a metal soldering machine. The machine is to be produced by the manufacturer according to Quartech’s specifications and it does not have a market outside of this transaction. To finance this purchase, the manufacturer provided Quartech with credit and asked the company to issue a five- year, $ 800,000 non- interest- bearing note payable. If Quartech borrowed the funds from a commercial bank, it would have incurred a 4% interest rate.
Required
a. Determine the proper valuation of the machine.
b. Prepare the journal entry to record the acquisition.