accounting-CityBank recently held an auction to dispose of various assets
QUESTION
CityBank recently held an auction to dispose of various assets
it had obtained through foreclosures and other loan settlements. Representatives of Advantage Metals
attended the auction to bid on an abandoned manufacturing plant that CityBank
included in the sale. The auction
brochure listed the manufacturing plant as including all land, buildings, and
equipment. The brochure indicated that
an independent appraisal had been conducted and that land was separately
valued at $1,000,000, the building at $2,000,000, and the equipment at
$4,000,000. This information is
believed to be reasonably accurate and fair.
Advantage Metals wanted the site for a recycling business it
planned to start at the location. All
of the equipment would be used in this new operation. The minimum bid price was set at
$4,900,000. As it turned out, the
auction was poorly attended. Advantage
was the only bidder on this property, and was fortunate to acquire the
property at the opening bid minimum.
Determine
the correct cost allocation to the land, buildings, and equipment, and
prepare a journal entry to reflect this acquisition.
GENERAL JOURNAL
Date
Accounts
Debit
Credit
Pierce Corporation recently hired a new manager for its
struggling construction division. The
manager was given responsibility for streamlining operations and restoring
profitability. Selling selected assets
is one option under consideration.
Begin by reviewing the following asset listing, and prepare hypothetical
entries “as if” each asset were sold for cash at its estimated fair
value. Then, determine which asset
should be sold if the objective becomes to (a) have the largest immediate
accounting gain, (b) have the largest immediate accounting loss, (c) result
in the highest avoidance of future depreciation expense in periods subsequent
to the period of asset sale, (d) produce the most immediate cash inflow, (e)
have the largest total asset position, or (f) have no change in total assets.
Cost
Accumulated Depreciation
Fair Value
Asset A
$ 2,500,000
$ 1,000,000
$ 3,000,000
Asset B
800,000
100,000
700,000
Asset C
4,600,000
500,000
4,000,000
Asset D
3,250,000
1,250,000
1,250,000
Pierce Corporation recently hired a new manager for its
struggling construction division. The
manager was given responsibility for streamlining operations and restoring
profitability. Selling selected assets
is one option under consideration.
Begin by reviewing the following asset listing, and prepare hypothetical
entries “as if” each asset were sold for cash at its estimated fair
value. Then, determine which asset
should be sold if the objective becomes to (a) have the largest immediate
accounting gain, (b) have the largest immediate accounting loss, (c) result
in the highest avoidance of future depreciation expense in periods subsequent
to the period of asset sale, (d) produce the most immediate cash inflow, (e)
have the largest total asset position, or (f) have no change in total assets.
Cost
Accumulated Depreciation
Fair Value
Asset A
$ 2,500,000
$ 1,000,000
$ 3,000,000
Asset B
800,000
100,000
700,000
Asset C
4,600,000
500,000
4,000,000
Asset D
3,250,000
1,250,000
1,250,000
ANSWER:
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