One of the Most Critical Steps in Recording the Acquisition

question 16

Essay

One of the most critical steps in recording the acquisition of assets is the determination of the cost assigned to the asset.Data related to assets acquired by Mindset Manufacturing Company are as follows:
(1)Machine A was purchased at a list price of $102,000; terms 2/10,net 30.The machine invoice was paid after the discount period.Transportation charges were $1,270; installation costs were $920; and the cost of a trial run was $960.Normal repairs and maintenance for the first year were $410.
(2)Machine B could be purchased for five annual payments of $6,332 or $29,400 in cash.Mindset elected to purchase Machine B under the installment plan.Other related acquisition costs totaled $175.
(3)On May 12,2014,Alberta Company offered to sell land to Mindset for $62,000; the offer was rejected.On June 29,2,125 shares of Mindset common stock were issued in exchange for the land.The par value of the stock was $20 per share; the market value of the stock was $32 per share at the time of purchase.Mindset's management was confident the land would be worth at least $64,000 to the company.
(4)The company purchased equipment under a deferred payment contract-- $40,000 down payment and 30 semiannual payments of $5,000.(Assume a 12 percent interest rate.)Determine the acquisition cost for each of the assets.

---

Definitions:

Double-entry Accounting

An accounting system in which every transaction is recorded in at least two accounts, ensuring the accounting equation remains balanced.

Journal Entry

A record in accounting that represents every single transaction made by a company, detailing the financial activities.

Debits

Entries on the left side of a double-entry bookkeeping system that increase asset or expense accounts, or decrease liability, equity, or revenue accounts.

Debits

An accounting entry that results in either an increase in assets or a decrease in liabilities on a company's balance sheet or in an individual's bank account.