I. (Correction of Improper Cost Entries) Plant acquisitions for selected companies are presented below.

1. Protex Inc acquired land, buildings, and equipment from a bankrupt company, for a lump-sum price of $700,000. At the time of purchase, the assets had the following book and appraisal values.

To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made,

2. Apple Industries purchased store equipment by making a $10,000 cash down payment and signing a 2-year, $40,000, 8% note payable. The purchase was recorded as follows.

3. Cherry Company purchased office equipment for $50,000, terms 1/10, n/30. Because the company intended to take the discount, it made no entry until it paid for the acquisition. The entry was:

4. Bubble Inc. recently received at zero cost land from the Village of Wellington as an inducement to locate its business in the Village. The appraised value of the land is $120,000. The company made no entry to record the land because it had no cost basis,

5. Gump Company built a factory for $750,000. It could have purchased the building for $900,000. The controller made the following entry:

Instructions

Prepare the entry that should have been made at the date of each acquisition.

II. (Nonmonetary Exchange) Dean Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $16,000 plus trade-in, f.o.b. factory. Dean Inc. paid $16,000 cash and traded in used equipment. The used equipment had originally cost $71,000; it had a book value of $32,500 and a secondhand market value of $36,800, as indicated by recent transac¬tions involving similar equipment. Freight and installation charges for the new equipment required a cash payment of $2,500.

Instructions

(a) Prepare the general journal entry to record this transaction, assuming that the exchange has commercial substance.
(b) Assuming the same facts as in (a) except that fair value information for the assets exchanged is not determinable. Pre¬pare the general journal entry to record this transaction.

III. (Analysis of Subsequent Expenditures) The following transactions occurred during 2017. Assume that depreciation of 10% per year is charged on all machinery and 3% per year on buildings, on a straight-line basis, with no esti¬mated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no depreciation is charged on fixed assets disposed of during the year.

Jan. 30 A building that cost $250,000 in 2000 is torn down to make room for a new building. The wrecking contractor was paid $18,000 and was permitted to keep all materials salvaged.

Mar. 10 Machinery that was purchased in 2010 for $20,000 is sold for $1,500 cash, f.o.b. purchaser's plant. Freight of $1,000 is paid on this machinery.

Mar. 20 A gear breaks on a machine that cost $12,000 in 2009. The gear is replaced at a cost of $750. The replacement does not extend the useful life of the machine.

May 18 A special base installed for a machine in 2011 when the machine was purchased has to be replaced at a cost of $6,000 because of defective workmanship on the original base. The cost of the machinery was $15,000 in 2011. The cost of the base was $3,000, and this amount was charged to the Machinery account in 2011.

June 23 One of the buildings is repainted at a cost of $12,000. It had not been painted since it was constructed in 2013.

Instructions

Prepare general journal entries for the transactions. (Round to the nearest dollar.)

IV. (Classification of Acquisition and Other Asset Costs) At December 31, 2016, certain accounts included in the property, plant, and equipment section of Seahorse Company's balance sheet had the following balances.

During 2017, the following transactions occurred.

1. Land (lot 4G) was acquired for $500,000. In addition, to acquire the land Seahorse paid a $30,000 commission to a real es-tate agent. Costs of $63,000 were incurred to clear and level the land. During the course of clearing the land, timber was recovered and sold for $6,300.

2. A second tract of land (lot 71)) with a building was acquired for $684,000. The closing statement indicated that the land value was $560,000 and the building value was $124,000. Shortly after acquisition, the building was demolished at a cost of $23,000. A new building was constructed for $687,000 plus the following costs.

The building was completed and occupied on November 30, 2017.

3. A third tract of land (lot 2K) was acquired for $411,000 and was put on the market for resale.

4. During December 2017, costs of $164,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2019, and is not expected to be renewed. (I-lint: Leasehold improvements should be handled in the same manner as land improvements.)

5. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $139,000, freight costs were $5,700, installation costs were $2,100, and royalty payments for 2017 were $18,600.

Instructions

(a) Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2017.

Land Leasehold Improvements
Buildings Equipment

(b) Disregard the related accumulated depreciation accounts. (b) List the items in the situation that were not used to determine the answer to (a) above, and indicate where, or if, these items should be included in Seahorse's financial statements.

V. (Depreciation Computations-Five Methods, Partial Periods} Scott Company purchased equipment for $250,000 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $50,000. Estimated production is 20,000 units and estimated working hours 10,000. During 2017 Scott uses the equipment for 900 hours, and the equipment produces 1,500 units.

Instructions

Compute depreciation expense under each of the following methods. Scott is on a calendar-year basis ending December 31.

(a) Straight-line method for 2017.
(b) Activity method (units of output) for 2017.
(c) Activity method (working hours) for 2017.
(d) Sum-of-the-years'-digits method for 2019,
(e) Double-declining balance method for 2018.

VI. (Error Analysis and Depreciation, St and SYD) Suzuki Company shows the following entries in its Equipment account for 2018. All amounts are based on historical cost.

Instructions

(a) Prepare any correcting entries necessary.

(b) Assuming that depreciation is to be charged for a full year on the ending balance in the asset account, compute the proper depreciation charge for 2018 under each of the methods listed below. Assume an estimated life of 10 years, with no salvage value. The remaining machinery included in the January 1, 2018, balance was purchased in 2016.

(1) Straight-line.
(2) Sum-of-the-years'-digits.