Chapter 10 Handout 1

School: Northeastern University - Course: ACCT 3401 - Subject: Accounting

Chapter 10 - Handout 1 Lump-Sum Purchases The Smyrna Hand & Edge Tools Company purchased an existing factory for a single sum of $2,000,000. The price included title to the land, the factory building, and the manufacturing equipment in the building, a patent on a process the equipment uses, and inventories of raw materials. An independent appraisal estimated the fair values of the assets (if purchased separately) at: Fair ValueAllocationxConsideration Paid=Recorded Value Land$330,000x$2,000,000= Building550,000x$2,000,000= Equipment660,000x$2,000,000= Patent440,000x$2,000,000= Inventories220,000x$2,000,000= Total$2,200,000100%$2,000,000 The following journal entry would be posted to record the purchase: Assets Acquired Through the Issuance of Equity Securities On March 31, 2021, the Elcorn Company issued 10,000 shares of its nopar common stock in exchange for land. On the date of the transaction, the fair value of the common stock, evidenced by its market price, was $20 per share. Prepare the journal entry to record the transaction. Assets Acquired Through Donation Elcorn Enterprises decided to relocate its office headquarters to the city of Westmont. The city agreed to pay 20% of the $20 million cost of building the headquarters in order to entice Elcorn to relocate. The building was completed on May 3, 2021. Elcorn paid its portion of the cost of the building in cash. Prepare the journal entry to record the transaction.

Nonmonetary Asset Exchange (Gain) The Elcorn Company traded its laser equipment for the newer air-cooled ion lasers manufactured by American Laser Corporation. The old equipment had a book value of $100,000 (cost of $500,000 less accumulated depreciation of $400,000) and a fair value of $150,000. To equalize the fair values of the assets exchanged, in addition to the old equipment, Elcorn paid American Laser $430,000 in cash. Prepare the journal entry to record the transaction. Nonmonetary Asset Exchange (Loss) The Elcorn Company traded its laser equipment for the newer air-cooled ion lasers manufactured by American Laser Corporation. The old equipment had a book value of $100,000 (cost of $500,000 less accumulated depreciation of $400,000) and a fair value of $75,000. To equalize the fair values of the assets exchanged, in addition to the old equipment, Elcorn paid American Laser $430,000 in cash. Prepare the journal entry to record the transaction. Nonmonetary Asset Exchange (Fair Value Not Determinable) The Elcorn Company traded its laser equipment for the newer air-cooled ion lasers manufactured by American Laser Corporation. The old equipment had a book value of $100,000 (cost of $500,000 less accumulated depreciation of $400,000). The fair value of both the new and old equipment is not determinable. Elcorn paid American Laser $430,000 in cash.