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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Acquisition Cost The following transactions of Weber Company occurred during 2019:

  1. 1. The company acquired a tract of land in exchange for 1,000 shares of $10 par value common stock. The stock was traded on the New York Stock Exchange at $24 on the date of exchange. The land had a book value on the selling company’s records of $5,000, and it was believed to be worth “anything up to $30,000.”
  2. 2. An engine on a truck was replaced. The truck originally cost $10,000 3 years ago and was being depreciated at $2,000 per year. The engine cost $1,000 to replace.
  3. 3. The company acquired a tract of land that was believed to have mineral deposits by issuing 500 shares of preferred stock of $50 par value. The preferred stock was rarely traded. The last transaction was 2 months earlier, when 50 shares were sold at $75 per share. The owner of the land was willing to accept cash of $55,000, and an appraisal had shown a value of $60,000.
  4. 4. The company purchased a machine with a list price of $8,500 by issuing a 2-year, $10,000 non-interest-bearing note when the market rate of interest was 10%.

Required:

Prepare journal entries to record the preceding events.

1.

To determine

Journalize transactions to record the acquisition of land by exchange stock.

Explanation

Property, Plant, and Equipment:

Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains

Prepare journal entry:

DateAccount titles and explanationDebit ($)Credit ($)
 Land (1,000shares×$24)

2.

To determine

Prepare journal entry to record the accumulated depreciation for truck.

3.

To determine

Journalize transaction to record the acquisition of truck by issuing stock.

4.

To determine

Journalize transaction to record the purchase of machine by issuing non-interest bearing note.

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