Issuance of stock for cash and noncash assets (Learning Objective 3) 10-15 min.
This exercise shows the similarity and the difference between two ways to acquire plant assets.
Case A—issue stock and buy the assets in separate transactions:
Apex, Inc., issued 10,000 shares of its $10 par common stock for cash of $600,000. In a separate transaction. Apex, Inc. purchased a building for $475,000 and equipment foe $125,000 and paid cash. Journalize the two transactions.
Case B—issue stock to acquire the assets:
Apex, Inc.. issued 10,000 shares of its $10 par common stock to acquire a building with a fair market value of $475,000 and equipment with a fair market value of $125,000. Journalize this single transaction.
Compare the balances in all accounts after making both sets of entries. Are the account balances similar or different?
Want to see the full answer?
Check out a sample textbook solutionChapter 10 Solutions
Financial Accounting, Student Value Edition (5th Edition)
- . (Learning Objectives 1, 3, 4: Measure and account for the cost of plant assets anddepreciation; analyze and record a plant asset disposal) Blair, Inc., has the following plantasset accounts: Land, Buildings, and Equipment, with a separate accumulated depreciationaccount for each of these except Land. Blair completed the following transactions:Jan 3 Traded in equipment with accumulated depreciation of $63,000 (cost of$130,000) for similar new equipment with a cash cost of $171,000. Receiveda trade-in allowance of $71,000 on the old equipment and paid $100,000in cash.Jun 30 Sold a building that had a cost of $635,000 and had accumulated depreciationof $170,000 through December 31 of the preceding year. Depreciationis computed on a straight-line basis. The building has a 40-year useful lifeand a residual value of $295,000. Blair received $135,000 cash and a$325,750 note receivable.Oct 31 Purchased land and a building for a single price of $340,000 cash. An independent appraisal valued…arrow_forward(Learning Objective 2: Distinguish capital expenditures from expenses) AssumeKaro Products, Inc., purchased conveyor-belt machinery. Classify each of the following expenditures as a capital expenditure or an immediate expense related to machinery:a. Periodic lubrication after the machinery is placed in serviceb. Special reinforcement to the machinery platformc. Major overhaul to extend the machinery’s useful life by five yearsd. Training of personnel for initial operation of the machinerye. Purchase pricef. Income tax paid on income earned from the sale of products manufactured by themachineryg. Ordinary repairs to keep the machinery in good working orderh. Transportation and insurance while machinery is in transit from seller to buyeri. Sales tax paid on the purchase pricej. Lubrication of the machinery before it is placed in servicek. Installation of the conveyor-belt machineryarrow_forward(Learning Objectives 3, 4: Measure DDB depreciation; analyze the effect of a saleof a plant asset) On January 2, 2018, Ellet Furniture purchased display shelving for $8,900cash, expecting the shelving to remain in service for five years. Ellet depreciated the shelvingon a double-declining-balance basis, with $1,100 estimated residual value. On August 31, 2019,the company sold the shelving for $2,800 cash. Record both the depreciation expense on theshelving for 2019 and its sale in August. Also show how to compute the gain or loss on thedisposal of the shelving.arrow_forward
- (Learning Objectives 3, 4: Measure DDB depreciation; analyze the effect of a saleof a plant asset) On January 2, 2018, Drake Furnishings purchased display shelving for $8,100cash, expecting the shelving to remain in service for five years. Drake depreciated the shelvingon a double-declining-balance basis, with $1,300 estimated residual value. On September 30,2019, the company sold the shelving for $2,400 cash. Record both the depreciation expense onthe shelving for 2019 and its sale in September. Also show how to compute the gain or loss onthe disposal of the shelvingarrow_forwardMahmoud Ma demic Calendar My MCBS Library English (en)- Course Documents ACT340/DI Test T Summer Session II 2021/ACT 340B/DT MNC Corporation purchased all of the outstanding stock of Caldwell Inc., paying $2,700,000 cash. Juliana assumed all of the liabilities of Caldwell. Book values and fair values of acquired assets and liabilities were: Book Value Fair Value Current Assets (net) $420,000 $450,000 Property, Plant and Equipment (net) 1600,000 2250,000 Liabilities 500,000 600,000 MNC would record goodwill of: a. $1,180,000. en or background noisearrow_forwardPlant acquisitions for selected companies are as follows.1. Blue Spruce Corporation purchased a company car by making a $5,490 cash down payment and signing a 1-year, $24,400, 10% note payable. The purchase was recorded as follows. Automobiles 32,330 Cash 5,490 Notes Payable 24,400 Interest Payable 2,440 2. As an inducement to locate its new branch office in the city of Greenwood Acres, Crane Co. received land and a building from the city at no cost. The appraised value of the land was $61,000. The appraised value of the building was $213,500. Since it paid nothing for the land and building, Crane Co. made no journal entry to record the transaction.3. Waterway Corporation purchased warehouse shelving for $122,000, terms 1/10, n/30. At the purchase date, Waterway intended to take the discount. Therefore, it made no entry until it paid for the acquisition. The entry was: Warehouse fixtures 122,000 Cash…arrow_forward
- (Learning Objective 5: Account for the depletion of a company’s naturalresources) Jackson Petroleum, a giant oil company, holds reserves of oil and gas assets. Atthe end of 2018, assume the cost of Jackson’s oil reserves totaled $180 billion, representing10 billion barrels of oil in the ground.1. Which depreciation method is similar to the depletion method that Jackson and other oilcompanies use to compute their annual depletion expense for the oil removed from theground?2. Suppose the company removed 1,000 million barrels of oil during 2019. Record this event.Show amounts in billions.3. Assume that, of the amount removed in (2), the company sold 800 million barrels. Makethe cost of sales entryarrow_forwardYou have been presented with the following set of financial statements for National Property Trust, a REIT that is about to make an initial stock offering to the public. This REIT specializes in the acquisition and management of warehouses. Your firm, Blue Street Advisors, is an investment management company that is considering the purchase of National Property Trust shares. You have been asked to prepare a financial analysis of the REIT. National Property Trust Panel A. Operating Statement Summary Net revenue $ 101,000,000 Less: Operating expenses 40,400,000 Depreciation and amortization 23,000,000 General and administrative expenses 6,100,000 Management expense 3,100,000 Income from operations 28,400,000 Less: Interest expense* 6,400,000 Net income (loss) $ 22,000,000 *At 8% interest only. Panel B. Balance Sheet Summary Assets Cash $ 51,600,000 Rents receivable 2,600,000 Properties @ cost 710,000,000 Less: Accumulated depreciation…arrow_forward(Learning Objectives 1, 4: Allocate costs to assets acquired in a lump-sumpurchase; dispose of a plant asset) Sugar Ridge Manufacturing bought three used machines ina $167,000 lump-sum purchase. An independent appraiser valued the machines as shown:Machine No. Appraised Value123$ 38,25073,10058,650What is each machine’s individual cost? Immediately after making this purchase, Sugar Ridgesold Machine No. 3 for its appraised value. What is the result of the sale? (Round decimals to threeplaces when calculating proportions, and use your computed percentages in all calculations.)arrow_forward
- (Learning Objective 3: Adjust the accounts for depreciation) Suppose that on January 1Sunbeam Travel Company paid cash of $50,000 for equipment that is expected to remain usefulfor four years. At the end of four years, the equipment’s value is expected to be zero.1. Make journal entries to record (a) the purchase of the equipment on January 1 and (b) annualdepreciation on December 31. Include dates and explanations, and use the following accounts:Equipment, Accumulated Depreciation—Equipment, and Depreciation Expense—Equipment.2. Post to the accounts and show their balances at December 31.3. What is the equipment’s book value at December 31?arrow_forwardYou have been presented with the following set of financial statements for National Property Trust, a REIT that is about to make an initial stock offering to the public. This REIT specializes in the acquisition and management of warehouses. Your firm, Blue Street Advisors, is an investment management company that is considering the purchase of National Property Trust shares. You have been asked to prepare a financial analysis of the REIT. National Property Trust Panel A. Operating Statement Summary Net revenue $ 112,000,000 Less: Operating expenses 44,800,000 Depreciation and amortization 34,000,000 General and administrative expenses 7,200,000 Management expense 4,200,000 Income from operations 21,800,000 Less: Interest expense* 6,400,000 Net income (loss) $ 15,400,000 *At 8% interest only. Panel B. Balance Sheet Summary Assets Cash $ 52,700,000 Rents receivable 3,700,000 Properties @ cost 820,000,000 Less: Accumulated depreciation…arrow_forwardPlant acquisitions for selected companies are as follows.1. Pina Colada Corporation purchased a company car by making a $4,320 cash down payment and signing a 1-year, $19,200, 10% note payable. The purchase was recorded as follows. Automobiles 25,440 Cash 4,320 Notes Payable 19,200 Interest Payable 1,920 2. As an inducement to locate its new branch office in the city of Greenwood Acres, Blossom Co. received land and a building from the city at no cost. The appraised value of the land was $48,000. The appraised value of the building was $168,000. Since it paid nothing for the land and building, Blossom Co. made no journal entry to record the transaction.3. Buffalo Corporation purchased warehouse shelving for $96,000, terms 1/10, n/30. At the purchase date, Buffalo intended to take the discount. Therefore, it made no entry until it paid for the acquisition. The entry was: Warehouse fixtures 96,000 Cash…arrow_forward
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage