Problem 1 - Nonmonetary exchange
Southern Company owns a building that it leases to others. The building's fair value is $2,350,000 and its book value is $1,560,000 (original cost of $2,950,000 less accumulated depreciation of $1,390,000). Southern exchanges this for a building owned by the Eastern Company. The building's book value on Eastern's books is $1,710,000 (original cost of $2,550,000 less accumulated depreciation of $840,000). Eastern also gives Southern $235,000 to complete the exchange. The exchange has commercial substance for both companies.
Required: Prepare the journal entries to record the exchange on the books of both Southern and Eastern.
Problem 2 - Fixed-asset turnover ratio; solve for unknown
The balance sheets of Pinewood Resorts reported net fixed assets of $930,000 and $1,080,000 at the end of 2012 and 2013, respectively. The fixed-asset turnover ratio for 2013 was 3.6.
Calculate Pinewood's net sales for 2013.
Problem 3 - Acquisition cost; machine
Beaverton Lumber purchased a milling machine for $50,000. In addition to the purchase price, Beaverton made the following expenditures: freight, $3,000; installation, $4,500; testing, $3,500; personal property tax on the machine for the first year, $1,250.
What is the initial cost of the machine?
Problem 4 - Acquisition cost; noninterest-bearing note
On June 30, 2013, Kimberly Farms purchased custom-made harvesting machinery from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $92,000 in two years. The fair value of the machinery is not known, but an 8% interest rate properly reflects the time value of money for this type of loan agreement. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
What amount will Kimberly initially value the machinery?
How much interest expense will Kimberly recognize in its income statement for this note for the year ended December 31, 2013?
Problem 5 - Acquisition cost; issuance of equity securities
Shackelford Corporation acquired a patent from its founder, Jim Shackelford, in exchange for 70,000 shares of the company's nopar common stock. On the date of the exchange, the common stock had a fair value of $21 per share.
Determine the cost of the patent.
Problem 6 - Acquisition costs; lump-sum acquisition
Semtech Manufacturing purchased land and building for $3 million. In addition to the purchase price, Semtech made the following expenditures in connection with the purchase of the land and building:
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Title insurance
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$30,000
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Legal fees for drawing the contract
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7,000
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Pro-rated property taxes for the period after acquisition
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50,000
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State transfer fees
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5,400
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An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3 and $1 million, respectively. Shortly after acquisition, Semtech spent $96,000 to construct a parking lot and $54,000 for landscaping.
Required:
1. Determine the initial valuation of each asset Semtech acquired in these transactions.
2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Semtech demolished the building. Demolition costs were $390,000 and the salvaged materials were sold for $8,000. In addition, Semtech spent $93,000 clearing and grading the land in preparation for the construction of a new building.