E10-16B (Asset Acquisition) Ogden 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 $186,000 cash. The following information was gathered.
Depreciation to
Initial Cost on Date on Seller’s Book Value on
Description Seller’s Books Books Seller’s Books Appraised Value
Machinery $65,000 $30,000 $35,000 $160,000
Office furniture 25,000 10,000 15,000 40,000
Asset 3
This machine was acquired by making a $25,000 down payment and issuing a $75,000, 1-year, zero-interestbearing
note. The note is to be paid off in at the end of the first year. It was estimated that the asset could
have been purchased outright for $91,000.
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 $150,000
Accumulated depreciation to date of sale 60,000
Fair value of machinery traded 96,000
Cash received 20,000
Fair value of machinery acquired 76,000
Asset 5
Machinery was acquired by issuing 1,000 shares of $1 par value common stock. The stock had a market value of $7 per share.
Construction of Building
A building was constructed on land purchased last year at a cost of $120,000. Construction began on March 1 and was completed on September 1. The payments to the contractor were as follows.
Date Payment
3/1 $200,000
5/1 300,000
6/1 100,000
9/1 400,000
To finance construction of the building, a $600,000, 10% construction loan was taken out on March 1.
The loan was repaid on September 1. The firm had $400,000 of other outstanding debt during the year at
a borrowing rate of 12%.
Instructions
Record the acquisition of each of these assets.
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