Question

Bob the Builder purchased a land and building in Year 6 for $4,000,000. $1.6 million of...

Bob the Builder purchased a land and building in Year 6 for $4,000,000. $1.6 million of the purchase price was allocated to the land, and the balance to the building. At the time of the purchase it was estimated that the building would have a useful life of 40 years but no residual value.

In Year 18 Bob exchanged the land and building for a piece of undeveloped land. The fair market value of the assets given up was estimated to be $6.2 million and the fair value of the land to be received was $6.1 million. To make up the difference in the fair values of the assets exchanged, Bob also received $100,000 cash

Bob depreciates his buildings using the straight-line method. Bob adopts half-year convention for depreciation.

(1) Prepare the journal entry to record the exchange of the asset in Year 18 for Bob the Builder, assuming that the transaction has commercial substance (general case).

(2) Prepare the journal entry to record the exchange of the asset in Year 18 for Bob the Builder, assuming that the transaction lacks commercial substance (exception case).

Homework Answers

Answer #1
No. Account Titles and Explanation Debit Credit
1 Land (new) 6100000
Cash 100000
Accumulated depreciation-building 720000
Gain on exchange 2920000
Land 1600000
Building 2400000
(To record the exchange of assets having commercial substance)
2 Land (new) 3180000
Cash 100000
Accumulated depreciation-building 720000
Land 1600000
Building 2400000
(To record the exchange of assets lacking commercial substance)

Working:

Annual depreciation on building = $2400000/40 = $60000

Accumulated depreciation from Year 6 to Year 18 = ($60000 x 1/2) + ($60000 x 11) + ($60000 x 1/2) = $30000 + $660000 + $30000 = $720000

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Scoop is a main "crew" in Bob the Builder and it was purchased on January 1,...
Scoop is a main "crew" in Bob the Builder and it was purchased on January 1, Year 10 for $100,000. [Please use "equipment" account for "Scoop" in your journal entry.] Bob has been depreciating Scoop on a straight-line basis over a 25-year period with zero residual value. The appraisal carried out on December, Year 14 determined that the fair value of scoop was $76,000 and the appraisal carried out on December, Year 19 determined that the fair value of scoop...
On January 1, 2010, the Felix Company purchased a machine to use in the manufacture of...
On January 1, 2010, the Felix Company purchased a machine to use in the manufacture of its product. The invoice cost of the machine was $260,000. At the time of acquisition, the machine had an original estimated useful life of 10 years and an estimated salvage value of $20,000. Annual depreciation was recorded at $24,000 per year. The machine was depreciated using the straight-line method. On August 1, 2015, Felix exchanged the old machine for a newer model. The new...
Pitney Co. purchased an office building, land, and furniture for $776,300 cash. The appraised value of...
Pitney Co. purchased an office building, land, and furniture for $776,300 cash. The appraised value of the assets was as follows:      Land $ 139,113   Building 269,531   Furniture 460,812       Total $ 869,456 Required a. Compute the amount to be recorded on the books for each asset. (Do not round intermediate calculations. Round your final answers to nearest whole dollar.)          b. Record the purchase in a horizontal statements model like the following one: (Do not round intermediate calculations. Round your...
29,000 shares reacquired by Sandhill Corporation for $57 per share were exchanged for undeveloped land that...
29,000 shares reacquired by Sandhill Corporation for $57 per share were exchanged for undeveloped land that has an appraised value of $1,480,000. At the time of the exchange, the common stock was trading at $63 per share on an organized exchange. (a) Prepare the journal entry to record the acquisition of land assuming that the purchase of the stock was originally recorded using the cost method.
Rodriguez Company pays $358,020 for real estate with land, land improvements, and a building. Land is...
Rodriguez Company pays $358,020 for real estate with land, land improvements, and a building. Land is appraised at $172,000; land improvements are appraised at $64,500; and a building is appraised at $193,500. Required: 1. Allocate the total cost among the three assets. 2. Prepare the journal entry to record the purchase.
9. Milan Company purchased land and an office building on March 1 for a combined cash...
9. Milan Company purchased land and an office building on March 1 for a combined cash price of $1,600,000. The land had a cost of $940,000 and the building had a book value of $200,000 on the seller's books. The land and building had fair market values of $1,040,000 and $560,000, respectively on March 1. Milan made the following entry at acquisition: Land ........................................................................................... 940,000 Building ...................................................................................... 1,000,000 Gain on Purchase .............................................................. 140,000 Accumulated Depreciation ................................................. 200,000 Cash .................................................................................. 1,600,000...
Alamos Co, exchanged equipment and $18,000 cash for similar equipment. The book value and the fair...
Alamos Co, exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000 respectively. Assuming that the exchange has commercial substance, Alamos would record a gain (loss) of: 26,000 8,000 <8,000> 0 Prepare the journal entry for the above transaction.
Year 6 is the first year of operation for Bob the Builder. The following information is...
Year 6 is the first year of operation for Bob the Builder. The following information is available for Bob's inventories:       December 31, Year 6:       At cost:  $585,000;       At lower of cost and net realizable value (NRV): $525,000       December 31, Year 7:       At cost: $780,000;       At lower of cost and net realizable value (NRV): $740,000 Prepare Bob's Year 7 journal entry to adjust its inventory from cost to the lower of cost and NRV, assuming the allowance method is being used.
Year 6 is the first year of operation for Bob the Builder. The following information is...
Year 6 is the first year of operation for Bob the Builder. The following information is available for Bob's inventories:       December 31, Year 6:       At cost:  $585,000;       At lower of cost and net realizable value (NRV): $525,000       December 31, Year 7:       At cost: $780,000;       At lower of cost and net realizable value (NRV): $740,000 Prepare Bob's Year 7 journal entry to adjust its inventory from cost to the lower of cost and NRV, assuming the allowance method is being used.
Samtech Manufacturing purchased land and building for $3 million. In addition to the purchase price, Samtech...
Samtech Manufacturing purchased land and building for $3 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building: Title insurance $ 35,000 Legal fees for drawing the contract 9,500 Pro-rated property taxes for the period after acquisition 55,000 State transfer fees 5,900 An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.6 and $1.2 million, respectively. Shortly after acquisition, Samtech spent...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT