Sweet Acacia Industries Inc. constructed a building and acquired five assets during the current year. Construction of Building: A building was constructed on land purchased last year at a cost of $264,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows. Date Payment March 1 $396,000 July 1 302,500 October 1 357,500 Sweet Acacia obtained a $770,000, 8% construction loan on March 1. Sweet Acacia repaid the loan on October 1. Sweet Acacia had $440,000 of other outstanding debt during the year at a borrowing rate of 9%. Asset 1: Sweet Acacia acquired office furniture by making a $8,250 down payment and issuing a $11,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $5,500 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $17,820. Asset 2: Sweet Acacia acquired manufacturing equipment by trading in used manufacturing equipment. (The exchange lacks commercial substance.) Facts concerning the trade-in are as follows. Cost of equipment traded in $57,200 Accumulated depreciation on equipment traded in - to date of sale 37,400 Fair value of equipment traded 27,500 Cash received 2,750 Fair value of equipment acquired 24,750 Asset 3: Four computers were acquired by issuing 500 shares of $1 par value common stock. The stock had a market price of $11 per share. Assets 4 and 5: Sweet Acacia purchased these assets together for a lump sum of $253,000 cash. The following information was gathered. Description Initial Cost on Seller’s Books Depreciation to Date on Seller’s Books Book Value on Seller’s Books Appraised Value Forklifts $82,500 $22,000 $60,500 $55,000 Equipment 198,000 44,000 154,000 181,500 Trucks 71,500 16,500 55,000 38,500

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Sweet Acacia Industries Inc. constructed a building and acquired five assets during the current year.

Construction of Building: A building was constructed on land purchased last year at a cost of $264,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows.

Date		Payment
March 1		$396,000
July 1		302,500
October 1		357,500

Sweet Acacia obtained a $770,000, 8% construction loan on March 1. Sweet Acacia repaid the loan on October 1. Sweet Acacia had $440,000 of other outstanding debt during the year at a borrowing rate of 9%.

Asset 1: Sweet Acacia acquired office furniture by making a $8,250 down payment and issuing a $11,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $5,500 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $17,820.

Asset 2: Sweet Acacia acquired manufacturing equipment by trading in used manufacturing equipment. (The exchange lacks commercial substance.) Facts concerning the trade-in are as follows.

Cost of equipment traded in		$57,200
Accumulated depreciation on equipment traded in - to date of sale		37,400
Fair value of equipment traded		27,500
Cash received		2,750
Fair value of equipment acquired		24,750

Asset 3: Four computers were acquired by issuing 500 shares of $1 par value common stock. The stock had a market price of $11 per share.

Assets 4 and 5: Sweet Acacia purchased these assets together for a lump sum of $253,000 cash. The following information was gathered.

Description	Initial Cost on Seller’s Books	Depreciation to Date on Seller’s Books		Book Value on Seller’s Books	Appraised Value
Forklifts	$82,500		$22,000		$60,500	$55,000
Equipment	198,000		44,000		154,000	181,500
Trucks	71,500		16,500		55,000	38,500

Acquisition of Asset 3
Acquisition of Assets 4 and 5

Record the acquisition of each of these assets. (Credit account titles are automatically indented when amount is entered. Do not indent
manually.)
Account Titles and Explanation
Debit
Credit
Acquisition of Asset 1
Acquisition of Asset 2

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