Sarasota Sporting Goods Inc. has been experiencing growth in the demand for its products over the last
Question:
Sarasota Sporting Goods Inc. has been experiencing growth in the demand for its products over the last several years. The last two Olympic Games significantly increased the popularity of basketball around the world. As a result, a European sports retailing consortium entered into an agreement with Sarasota's Roundball Division to purchase basketballs and other accessories on an increasing basis over the next five years.
Sarasota had to obtain additional manufacturing capacity to meet this agreement's quantity commitments. A real estate firm located an available factory close to Sarasota's Roundball manufacturing facility. Sarasota agreed to purchase the factory and used machinery from Encino Athletic Equipment Company on October 1, 2020. Renovations were necessary to convert the factory for Sarasota's manufacturing use.
The terms of the agreement required Sarasota to pay Encino $60,000 when renovations started on January 1, 2021, with the balance to be paid as renovations were completed. The overall purchase price for the factory and machinery was $480,000. The building renovations were contracted to Malone Construction at $120,000. The payments made as renovations progressed during 2021 are shown below. The factory was placed in service on January 1, 2022.