Nguyen Company has purchased a stone quarry for $8 million. Nguyen must now estimate the fair values of the assets acquired in the purchase in order to properly record the acquisition. One of the assets is a rock crushing system to make gravel. This system includes a crusher, a conveyer belt, and a control room. Because rock crushing systems such as this are designed for the quarry in which they are located, there is no practical way to directly determine a selling price for this particular system. However, Nguyen got a bid for $850,000 to duplicate the system with new construction. The existing system has been in use for six years, and such systems are typically assumed to have a useful life of 16 years with a 5% salvage value. Using these data, estimate the fair value of the rock crushing system so Nguyen can record this asset on its books.
Nguyen Company has purchased a stone quarry for $8 million. Nguyen must now estimate the fair values of the assets acquired in the purchase in order to properly record the acquisition. One of the assets is a rock crushing system to make gravel. This system includes a crusher, a conveyer belt, and a control room. Because rock crushing systems such as this are designed for the quarry in which they are located, there is no practical way to directly determine a selling price for this particular system. However, Nguyen got a bid for $850,000 to duplicate the system with new construction. The existing system has been in use for six years, and such systems are typically assumed to have a useful life of 16 years with a 5% salvage value. Using these data, estimate the fair value of the rock crushing system so Nguyen can record this asset on its books.
Financial Accounting
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter10: Fixed Assets And Intangible Assets
Section: Chapter Questions
Problem 3CP: Tuttle Construction Co. specializes in building replicas of historic houses. Tim Newman, president...
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Nguyen Company has purchased a stone quarry for $8 million. Nguyen must now estimate the fair values of the assets acquired in the purchase in order to properly record the acquisition.
One of the assets is a rock crushing system to make gravel. This system includes a crusher, a conveyer belt, and a control room. Because rock crushing systems such as this are designed for the quarry in which they are located, there is no practical way to directly determine a selling price for this particular system.
However, Nguyen got a bid for $850,000 to duplicate the system with new construction. The existing system has been in use for six years, and such systems are typically assumed to have a useful life of 16 years with a 5% salvage value.
Using these data, estimate the fair value of the rock crushing system so Nguyen can record this asset on its books.
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