Hayes 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 $100,000 cash. The following information was gathered. Description Initial Cost on Seller’s Books Depreciation to Date on Seller’s 000Books000 Book Value on Seller’s Books Appraised Value Machinery 00 $100,00000 00 $50,00000 00 $50,00000 00 $90,00000 Equipment 00 60,00000 00 10,00000 00 50,00000 00 30,00000 Asset 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. 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 Accumulated depreciation to date of sale Fair value of machinery traded Cash received Fair value of machinery acquired $100,000 40,000 80,000 10,000 70,000 Asset 5: Equipment was acquired by issuing 100 shares of $8 par value common stock. The stock had a market price of $11 per share. Construction of Building: A building was constructed on land purchased last year at a cost of $150,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows. Date Payment 2/1 $120,000 6/1 360,000 9/1 480,000 11/1 100,000 To finance construction of the building, a $600,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 8%. Instructions Record the acquisition of each of these assets.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Hayes 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 $100,000 cash. The following information was gathered.
| Description |
|
Initial Cost on Seller’s Books |
|
Depreciation to Date on Seller’s 000Books000 |
|
Book Value on Seller’s Books |
|
Appraised Value |
| Machinery |
00
|
$100,00000
|
00
|
$50,00000
|
00
|
$50,00000
|
00
|
$90,00000
|
| Equipment |
00
|
60,00000
|
00
|
10,00000
|
00
|
50,00000
|
00
|
30,00000
|
Asset 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.
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 Accumulated depreciation to date of sale Fair value of machinery traded Cash received Fair value of machinery acquired |
$100,000
40,000 80,000 10,000 70,000 |
Asset 5: Equipment was acquired by issuing 100 shares of $8 par value common stock. The stock had a market price of $11 per share.
Construction of Building: A building was constructed on land purchased last year at a cost of $150,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows.
| Date |
|
Payment
|
| 2/1 |
|
$120,000
|
| 6/1 |
|
360,000
|
| 9/1 |
|
480,000
|
| 11/1 |
|
100,000
|
To finance construction of the building, a $600,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 8%.
Instructions
Record the acquisition of each of these assets.
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