Vaughn 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 $250,000 cash. The following information was gathered. Description Machinery Equipment. Initial Cost on Seller's Books $250,000 150,000 Depreciation to Date on Seller's Books $125,000 Cost of machinery traded Accumulated depreciation to date of sale Fair value of machinery traded Cash received Fair value of machinery acquired Date Payment 25,000 $250,000 100,000 Asset 3: This machine was acquired by making a $25,000 down payment and issuing a $75,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $37,500 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $89,750. 200,000 Book Value on Seller's Books Asset 4: This machinery was acquired by trading in used machinery. (The exchange lacks commercial substance.) Facts concerning the trade-in are as follows. 25,000 $125,000 175,000 125,000 Appraised Value $225,000 75,000 Asset 5: Equipment was acquired by issuing 100 shares of $20 par value common stock. The stock had a market price of $28 per share. Construction of Building: A building was constructed on land purchased last year at a cost of $375,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows.
Vaughn 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 $250,000 cash. The following information was gathered. Description Machinery Equipment. Initial Cost on Seller's Books $250,000 150,000 Depreciation to Date on Seller's Books $125,000 Cost of machinery traded Accumulated depreciation to date of sale Fair value of machinery traded Cash received Fair value of machinery acquired Date Payment 25,000 $250,000 100,000 Asset 3: This machine was acquired by making a $25,000 down payment and issuing a $75,000, 2-year, zero-interest-bearing note. The note is to be paid off in two $37,500 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $89,750. 200,000 Book Value on Seller's Books Asset 4: This machinery was acquired by trading in used machinery. (The exchange lacks commercial substance.) Facts concerning the trade-in are as follows. 25,000 $125,000 175,000 125,000 Appraised Value $225,000 75,000 Asset 5: Equipment was acquired by issuing 100 shares of $20 par value common stock. The stock had a market price of $28 per share. Construction of Building: A building was constructed on land purchased last year at a cost of $375,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:Vaughn 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 $250,000 cash. The following information was gathered.
Description
Machinery
Equipment
Initial Cost on
Seller's Books
$250,000
150,000
Depreciation to
Date on Seller's Books
$125,000
Cost of machinery traded
Accumulated depreciation to date of sale
Fair value of machinery traded
Cash received
Fair value of machinery acquired
25,000
Date Payment
$250,000
100,000
Asset 3: This machine was acquired by making a $25,000 down payment and issuing a $75,000, 2-year, zero-interest-bearing note. The
note is to be paid off in two $37,500 installments made at the end of the first and second years. It was estimated that the asset could
have been purchased outright for $89,750.
200,000
Book Value on
Seller's Books
Asset 4: This machinery was acquired by trading in used machinery. (The exchange lacks commercial substance.) Facts concerning the
trade-in are as follows.
25,000
$125,000
175,000
125,000
Appraised Value
$225,000
75,000
Asset 5: Equipment was acquired by issuing 100 shares of $20 par value common stock. The stock had a market price of $28 per share.
Construction of Building: A building was constructed on land purchased last year at a cost of $375,000. Construction began on
February 1 and was completed on November 1. The payments to the contractor were as follows.
Transcribed Image Text:Date Payment
2/1 $300,000
6/1
9/1
11/1
To finance construction of the building, a $1,500,000, 12% construction loan was taken out on February 1. The loan was repaid on
November 1. The firm had $500,000 of other outstanding debt during the year at a borrowing rate of 8%.
Record the acquisition of each of these assets. (Do not round intermediate calculations and final answers to 0 decimal places eg. 58,971.
Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for
the account titles and enter O for the amounts. List all debit entries before credit entries.)
Account Titles and Explanation
Acquisition of Assets 1 and 2
machinary
cash
900,000
1,200,000
250,000
Equipment
Acquisition of Asset 3
Machinery
Cash
Insurance Expense
Min
Cash
nscribed Text
Notes Payable
Acquisition of Asset 4
Cash
Machinery
Machinery
Gain on Disposal of Machinery
Acquisition of Asset 5
Equipment
Common Stock
Paid-in Capital in Excess of Par-Common Stock
(To record acquisition of Office Equipment)
Cash
Buildings
Interest Expense
(To record construction of Building)
Debit
Credit
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