The Acquisition

Q: On January 1, 2010, Ruby Company purchased a piece of equipment with a list price of $60,000. The following amounts were related to the equipment purchase:

Terms of the purchase were 2/10, net 30. Ruby paid for the purchase on January 8.

Freight costs of $1,000 were incurred.

A state agency required that a pollution-control device be installed on the equipment at a cost of $2,500.

During installation, the equipment was damaged and repair costs of $4,000 were incurred.

Architect's fees of $6,000 were paid to redesign the work space to accommodate the new equipment.

Ruby purchased liability insurance to cover possible damage to the asset. The three-year policy cost $8,000.

Ruby financed the purchase with a bank loan. Interest of $3,000 was paid on the loan during 2010.

Required:

Determine the acquisition cost of the equipment.

A:

You paid within the discount period so the base amount is:

$60,000 X 98% = $58,800

To that you add the:

Freight Costs $1,000

Pollution Control $2,500

Architect Fees $6,000

That gives you an acquisition cost of $68,300.

The damage and repair costs during installation is not really related to the acquisition and should be expensed as a period cost.

Also expensed as period costs are the liability insurance (which should have paid for the damages incurred during installation) and the interest costs.

Q:

To add to his growing chain of grocery stores, on January 1, 2012, Danny Marks bought a grocery store of a small competitor for $520,000. An appraiser, hired to assess the acquired assets' value, determined that the land, building, and equipment had market values of $200,000, $150,000, and $250,000, respectively.

1. What is the acquisition cost of each asset? Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

Land: 173333

Building: 130000

Equipment: 216667

Identify and analyze the effect of the acquisition.

Activity: Investing

Accounts: Land Increase,...