Cardinals Corporation purchased a computer on December 31, 2013, for $105,000, paying $30,000 down and agreeing to pay the balance in five equal insta
Cardinals Corporation purchased a computer on December 31, 2013, for $105,000, paying $30,000 down and agreeing to pay the balance in five equal installments of $15,000 payable each December 31 beginning in 2014. An assumed interest rate of
\r\n10% is implicit in the purchase price.
\r\nInstructions
\r\n(Round to two decimal places.)
\r\n(a) Prepare the journal entry(ies) at the date of purchase.
\r\n(b) Prepare the journal entry(ies) at December 31, 2014, to record the payment and interest (effectiveinterest method employed).
\r\n(c) Prepare the journal entry(ies) at December 31, 2015, to record the payment and interest (effectiveinterest method employed).
\r\nE10-16 (Asset Acquisition) Hayes Industries purchased the following assets and constructed a building as well. All this was done during the current year.
\r\nAssets 1 and 2: These assets were purchased as a lump sum for $100,000 cash. The following informationwas gathered.
\r\nDepreciation to
\r\nInitial Cost on Date on Seller’s Book Value on
\r\nDescription Seller’s Books Books Seller’s Books Appraised Value
\r\nMachinery $100,000 $50,000 $50,000 $90,000
\r\nEquipment 60,000 10,000 50,000 30,000
\r\nAsset 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.
\r\nAsset 4: This machinery was acquired by trading in used machinery. (The exchange lacks commercial substance.)
\r\nFacts concerning the trade-in are as follows.
\r\nCost of machinery traded $100,000
\r\nAccumulated depreciation to date of sale 40,000
\r\nFair value of machinery traded 80,000
\r\nCash received 10,000
\r\nFair value of machinery acquired 70,000
\r\nAsset 5: Equipment was acquired by issuing 100 shares of $8 par value common stock. The stock had a market price of $11 per share.
\r\nConstruction of Building: A building was constructed on land purchased last year at a cost of $150,000.
\r\nConstruction began on February 1 and was completed on November 1. The payments to the contractor were as follows.
\r\nDate Payment
\r\n2/1 $120,000
\r\n6/1 360,000
\r\n9/1 480,000
\r\n11/1 100,000
\r\nTo finance construction of the building, a $600,000, 12% construction loan was taken out on February 1.
\r\nThe loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 8%.
\r\nInstructions
\r\nRecord the acquisition of each of these assets.