Question

1. A company purchased new equipment for $61,000. The company paid cash for the equipment. Other costs associated with the equipment were: transportation costs, $1,050; sales tax paid $3,200; and installation cost, $2,600.

The cost recorded for the equipment was:

$65,250.

$67,850.

$62,050.

$61,000.

2. Alamos Co. exchanged equipment and $17,300 cash for similar equipment. The book value and the fair value of the old equipment were $81,000 and $91,300, respectively. Assuming that the exchange has commercial substance, Alamos would record a gain/(loss) of:

$(10,300).

$27,600.

$10,300.

$0.

3. A company purchased land, a building, and equipment for one price of $1,550,000. The estimated fair values of the land, building, and equipment are $193,750, $1,356,250, and $387,500, respectively.

At what amount would the company record the land?

$193,750

$155,000

$1,550,000

$165,000

Answer 1

1) Cost of the equipment :

The original cost of an asset takes into consideration all of the items that can be attributed to its purchase and to putting the asset to use.

Hence, the cost incurred for transportation, installation and sales tax paid are attributable to its purchase and to putting the asset to use.

Therefore, cost of the equipment = Purchase cost + transportation cost + installation cost + sales tax paid.

= 61000 + 1050 + 2600 + 3200

Cost of the equipment = $ 67,850.

3)

Consolidated purchase price of land, building and equipment = $ 15,50,000.

Fair values of the land, building, and equipment are $193,750, $1,356,250, and $387,500, respectively.

Therefore, amount attributable to land = consolidated price * fair value of land / consolidated fair value.

= 15,50,000 * 1,93,750 / 19,37,500

Amount attributable to land = $ 1,55,000