Question

E10.13 (LO 1, 3) (Entries for Acquisition of Assets) Presented below is information related to Zonker Company. 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 Buildings Equipment $400,000 1,200,000 800,000 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 Construction of bases for equipment to be installed later Driveways and parking lots Remodeling of office space in building, including new partitions and walls Special assessment by city on land $105,000 135,000 122,000 161,000 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:

See below

Explanation:

1. Journal entry

Land Dr $350,000

Building Dr $1,050,000

Machinery and equipment Dr $700,000

........................ To Common stock Cr $1,250,000

(12,500 × $100)

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

($2,100,000 - $1,250,000)

Workings

Cost of plant is $168 × 12,500 = $2,100,000

2. Journal entry

Building Dr $266,000

($105,000 + $161,000)

Machinery and equipment Dr $135,000

Land improvements Dr $122,000

Land Dr $18,000

..............................................To Cash a/c Cr $541,000

3. Journal entry

Machinery and equipment Dr $255,500

..........................................To cash a/c Cr $255,500

Working

($10,500 + $245,000 which is 98% of $250,000)