Question

1. On July 6, Zonker Company acquired the plant assets of Doonesbury Company, which had discontinued operations. The appraised value of the property is:
Land $ 400,000 Buildings 1,200,000 Equipment 800,000 Total $2,400,000

Zonker Company gave 12,500 shares of its $100 par value common stock in exchange. The stock had a market price of $168 per share on the date of the purchase of the property.

2. Zonker Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building.

Repairs to building $105,000

Construction of bases for equipment to be installed later 135,000

Driveways and parking lots 122,000

Remodeling of offi ce space in building, including new partitions and walls 161,000

Special assessment by city on land 18,000

3. On December 20, the company paid cash for equipment, $260,000, subject to a 2% cash discount, and freight on equipment of $10,500.

Instructions Prepare entries on the books of Zonker Company for these transactions

Answer 1

Answer and Explanation:

1. Land Dr $350,000 ($12,500 × $100 × $400,000 ÷ $2,400,000)

 Building Dr $1,050,000 ($12,500 × $100 × $1,200,000 ÷ $2,400,000)

 Machinery and equipment Dr $700,000 ($12,500 × $100 × $800,000 ÷ $2,400,000)

           To Common stock ($12,500 × $100) $1,250,000

           To Paid in capital in excess of par $850,000

(Being the acquisition is recorded)

2. Building Dr ($105,000 + $161,000) $261,000

   Machinery and equipment Dr $135,000

   Land improvement Dr $122,000

   Land Dr $18,000

             To Cash $541,000

(being the cash paid is recorded)

3. Machinery and equipment Dr $256,300 ($260,000 × 98%)

          To cash

,(being cash paid is recorded)