Banks Beer PLC (BBP), manufacturer, wholesaler and retailer of beers, made the following property, plant and equipment acquisitions during the year 2019. The following journal entries were presented to you by the new and inexperienced Accounts Clerk under your supervision for review. Jan 20: BBP built a warehouse for $600,000. It could have purchased a warehouse building for $740,000. The entry made was: Building $740,000 Cash $600,000 Profit on construction $140,000 Mar 1: BBP purchased office equipment for $20,000, terms 2/10, n/30. Because BBP intended to take the discount, it made no entry until it paid for the acquisition. The entry made was: Equipment $20,000 Cash $19,600 Purchase Discount $400 Apr 4: BBP purchased store equipment by making a $2,000 cash down payment and signing a 1-year $23,000, 10% note payable. The acquisition was recorded as follows: Equipment $27,300 Cash $2,000 Note Payable $23,000 Interest Payable $2,300 Jun 12: BBP acquired land, buildings and equipment from Corona Ltd, a bankrupt company, for a lump-sum amount of $680,000. At the time of the purchase, Corona’s assets had the following book and appraisal values. Book Values Appraisal Values Land $200,000 $150,000 Building $230,000 $350,000 Equipment $300,000 300,000 To be conservative, the Accounts Clerk decided to take the lower of the two values for each asset acquired. The following entry was made: Land $150,000 $150,000 Building $230,000 $350,000 Equipment $300,000 300,000 Cash $680,000 Required: Review all of the accounting entries made by your junior staff and make any necessary correction to reflect the entry that should have been made at the date of each acquisition.
Banks Beer PLC (BBP), manufacturer, wholesaler and retailer of beers, made the following property, plant and equipment acquisitions during the year 2019. The following
Jan 20: BBP built a warehouse for $600,000. It could have purchased a warehouse building for $740,000. The entry made was:
|
Building |
$740,000 |
|
|
Cash |
|
$600,000 |
|
Profit on construction |
|
$140,000 |
Mar 1: BBP purchased office equipment for $20,000, terms 2/10, n/30. Because BBP intended to take the discount, it made no entry until it paid for the acquisition. The entry made was:
|
Equipment |
$20,000 |
|
|
Cash |
|
$19,600 |
|
Purchase Discount |
|
$400 |
Apr 4: BBP purchased store equipment by making a $2,000 cash down payment and signing a 1-year $23,000, 10% note payable. The acquisition was recorded as follows:
|
Equipment |
$27,300 |
|
|
Cash |
|
$2,000 |
|
Note Payable |
|
$23,000 |
|
Interest Payable |
|
$2,300 |
Jun 12: BBP acquired land, buildings and equipment from Corona Ltd, a bankrupt company, for a lump-sum amount of $680,000. At the time of the purchase, Corona’s assets had the following book and appraisal values.
|
|
Book Values |
Appraisal Values |
|
Land |
$200,000 |
$150,000 |
|
Building |
$230,000 |
$350,000 |
|
Equipment |
$300,000 |
300,000 |
To be conservative, the Accounts Clerk decided to take the lower of the two values for each asset acquired. The following entry was made:
|
Land |
$150,000 |
$150,000 |
|
Building |
$230,000 |
$350,000 |
|
Equipment |
$300,000 |
300,000 |
|
Cash |
|
$680,000 |
Required:
Review all of the accounting entries made by your junior staff and make any necessary correction to reflect the entry that should have been made at the date of each acquisition.
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