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Navajo Corporation traded a used truck (cost $21,460, accumulated depreciation $19,314) for a small computer worth $3,54
1.
Navajo also paid $
537
in the transaction.
Prepare the journal entry to record the exchange. (The exchange has commercial substance.)
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation |
Debit |
Credit |
||||||
Plant acquisitions for selected companies are presented below.
1. Natchez Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Vivace Co., for a lump-sum price of $
737,120
. At the time of purchase, Vivace’s assets had the following book and appraisal values.
Book Values
Appraisal Values
Land
$216,800
$
162,600
Building
s
249,320
379,400
Equipment
325,200
325,200
To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made.
Buildings
249,320
325,200
Cash
2.
Arawak Enterprises purchased store equipment by making a $
2,168
cash
down payment and signing a 1-year, $
24,932
, 10% note payable. The purchase was recorded as follows.
29,593
Notes Payable
Interest Payable
2,493
3.
Ace Company purchased office equipment for $
22,000
, terms 2/10, n/30. Because the company intended to take the discount, it made no entry until it paid for the acquisition. The entry was:
22,000 | |
21,560 |
|
Purchase Discounts |
440 |
4.
Paunee Inc. recently received at zero cost land from the Village of Cardassia as an inducement to locate its business in the Village. The appraised value of the land is $29,268. The company made no entry to record the land because it had no cost basis.
5.
Mohegan Company built a warehouse for $
650,400
. It could have purchased the building for $
802,160
. The controller made the following entry.
Buildings | 802,160 | |||||
650,400 | ||||||
Profit on Construction |
151,760 |
Prepare the entry that should have been made at the date of each acquisition.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
No. |
||||||||||||||||||||||||
1. | ||||||||||||||||||||||||
2. | ||||||||||||||||||||||||
3. | ||||||||||||||||||||||||
4. | ||||||||||||||||||||||||
5. | ||||||||||||||||||||||||
= |
$737,120 x |
$138,210 |
||||||||||||||||||||||
$867,200 |
||||||||||||||||||||||||
$379,400 |
$322,490 |
|||||||||||||||||||||||
$325,200 |
$276,420 |
|||||||||||||||||||||||
Accounts Payable |
($22,000 x 0.98) |
$21,560 |
Presented below is information related to Rommel Company.
1. On July 6, Rommel Company acquired the plant assets of Studebaker Company, which had discontinued operations. The appraised value of the property is:
$434,010 |
||||
1,276,500 |
||||
842,490 |
||||
Total |
$2,553,000 |
Rommel Company gave 12,500 shares of its $100 par value common stock in exchange. The stock had a fair value of $187 per share on the date of the purchase of the property.
2. Rommel Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building.
Repairs to building |
$105,500 |
Construction of bases for machinery to be installed later |
142,400 |
Driveways and parking lots |
133,200 |
Remodeling of office space in building, including new partitions and walls |
162,900 |
Special assessment by city on land |
18,900 |
3. On December 20, the company paid cash for machinery, $290,000, subject to a 2% cash discount, and freight on machinery of $10,540.
Prepare entries on the books of Rommel Company for these transactions.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
No.
Account Titles and Explanation
Debit
Credit
1.
2.
3.
1.
Common Stock
=
(12,500 x $100)
=
$1,250,000
Paid-in Capital in E
xcess of Par—Common Stock
=
($2,337,500 – $1,250,000)
=
$1,087,500
The cost of the property, plant and equipment is $2,337,500 (12,500 x $187). This cost is allocated based on appraised values as follows:
x $2,337,500 |
$397,375 |
||
Building |
$1,276,500 |
$1,168,750 |
|
$842,490 |
= |
$771,375 |
($105,500 + $162,900) |
$268,400 |
($10,540 + $284,200, which is 98% of $290,000) |
$294,740 |
(Classification of Land and Building Costs)
Spitfire Company was incorporated on January 2, 2013, but was unable to begin manufacturing activities until July 1, 2013, because new factory facilities were not completed until that date.
The Land and Building account reported the following items during 2013.
January 31
Land and building
$160,000
February 28
Cost of removal of building
9,800
May 1
Partial payment of new construction
60,000
May 1
Legal fees paid
3,770
June 1
Second payment on new construction
40,000
June 1
Insurance premium
2,280
June 1
Special tax assessment
4,000
June 30
General expenses
36,300
July 1
Final payment on new construction
30,000
December 31
Asset write-up
53,800
399,950
December 31
Depreciation-2013 at 1%
4,000
December 31, 2013
Account balance
$395,950
The following additional information is to be considered.
1. To acquire land and building the company paid $80,000 cash and 800 shares of its 8% cumulative preferred stock, par value $100 per share. Fair market value of the stock is $117 per share.
2. Cost of removal of old buildings amounted to $9,800, and the demolition company retained all materials of the building.
3. Legal fees covered the following.
Cost of organization
$
610
Examination of title covering purchase of land
1,300
Legal work in connection with construction contract
1,860
$3,770
4. Insurance premium covered the building for a 2-year term beginning May 1, 2013.
5. The special tax assessment covered street improvements that are permanent in nature.
6. General expenses covered the following for the period from January 2, 2013, to June 30, 2013.
President’s salary
$32,100
Plant superintendent covering supervision of new building
4,200
$36,300
7. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $53,800, believing that such an increase was justified to reflect the current market at the time the building was completed.
Retained earnings
was credited for this amount.
8. Estimated life of building – 50 years.
Depreciation for 2013 – 1% of asset value (1% of $400,000, or $4,000).
THE NAMES BY THE ONCE ON RED ARE ALSO WRONG.
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Prepare entries to reflect correct land, building, and depreciation accounts at December 31, 2013.
(Round amount for accumulated depreciation to 0 decimal places, e.g. 2,530. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
Description/Account
Debit
Credit
Land
Additional paid-in capital
Description/Account
Debit
Credit
Land (Schedule A)
188,700
Building (Schedule B)
136,250
Retained earnings
53,800
Salary expense
32,100
Prepaid insurance
(16 months × $95)
1,520
Organization expense
610
Insurance expense
(6 months × $95)
570
Land and building
399,950
Additional paid-in capital (800 shares × $17)
13,600
Land and building
4,000
Depreciation expense
2,637
Accumulated depreciation-Building
1,363
Schedule A
Amount consists of:
Acquisition cost [$80,000 + (800 × $117)]
$173,600
Removal of old building
9,800
Legal fees (Examination of title)
1,300
Special tax assessment
4,000
Total
$188,700
Schedule B
Amount consists of:
Legal fees (Construction contract)
$ 1,860
Construction costs (First payment)
60,000
Construction costs (Second payment)
40,000
Insurance (2 months)
[(2,280 ÷ 24) = $95 × 2 = $190]
190
Plant superintendent’s salary
4,200
Construction costs (Final payment)
30,000
Total
$136,250
Schedule C
Depreciation taken
$4,000
Depreciation that should be taken
(1% × $136,250)
(1,363)
Depreciation adjustment
$2,637
3541
397375
Buildings
1168750
Equipment
771375
125000
Paid-in Capital in E
1087500
Buildings
268400
Machinery
142400
Land Improvemen
133200
Land
Accumulated Dep
18900
Cash
562900
Machinery
294740
Cash
294740
19314
188700
resp_str_c10q_3
Building
136250
resp_str_c10q_3
Retained earnings
53800
Organization expense
610
Salary expense
32100
Prepaid insurance
1520
resp_str_c10q_3
Insurance expense
Cash
570
resp_str_c10q_3
Land and building
399950
13600
resp_str_c10q_3
Land and building
4000
Accumulated depreciation-Building
1363
Depreciation expense
2637
537
Trucks
21460
Contribution Reve
nue
858
Land
138210
Buildings
322490
Equipment
276420
Cash
737120
Equipment
27100
cash
2168
24932
Equipment
21560
Notes Payable
21560
Land
Equipment
29268
Contribution Reve
29268
Buildings
650400
Cash
650400
Land