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.
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
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.
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
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.
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%.
Record the acquisition of each of these assets.