Lesson%208%20Solutions

Lesson%208%20Solutions - Suggested Solutions for ACCT 351...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Suggested Solutions for ACCT 351 Adapted from Beechy, T. H., & Conrod, J. E. D. (2005). Solutions manual to accompany intermediate accounting, volume 1 (3 rd Can. ed.). Toronto: McGraw-Hill Ryerson. Reproduced with permission. Page 1 of 18 Lesson 8, Chapter 9 Assignment 9-5 (text, p. 518) a. Cost is $41,450 [$40,000 + $1,000 + (1/2 × $900)]. Cost is measured by cash paid plus liabilities assumed. Taxes for the current year should be prorated between asset and expense. b. Cost is $80,000. The difference between the appraised value of the land and the so-called market value of the shares is likely material. The market value per share is questionable as a cost basis, in view of the small number of shares involved in the recent transaction that “established” the market value of $6 per share. To record a cost of $4,000 over the appraised value would violate the cost principle. c. Cost is $7,800; market value of the consideration given up. In a non-cash acquisition, under the cost principle, cost is measured by the market value of the consideration given or property received, whichever is more clearly evident. The value of the consideration given should be used because it is the preferable conceptual choice, and it appears to be objectively measurable. The value is more objective than in the prior question, where there was only one transaction. A two-year-old rejected purchase offer is not more reliable than current fair value of the common shares. d. Cost is $60,000 (1,000 shares × $60); market value of the consideration given up. In a non-cash acquisition, cost is determined by the market value of the consideration given or the asset received, whichever is more clearly evident. Appraised value is not as conclusive a measure of value as the cash offer. Where there is a substantial difference between the market value of the consideration given and the market value of the asset received, doubt is cast upon the existence of arm’s-length bargaining. The $1,000 difference does not appear to be substantial. Also, the timing of the offer to sell for $59,000 is not clear.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Suggested Solutions for ACCT 351 Page 2 of 18 Assignment 9-8 (text, pp. 519–520) Case A Drill Press. ................................................... $ 11,040 1 Lathe . .......................................................... 30,540 Air Compressor. .......................................... 18,420 1 1 Market Value . Apportioned Item Amount Percent Cost Cost Drill Press $ 12,600 18.4% × $60,000 = $11,040 Lathe 34,800 2 50.9% × 60,000 = 30,540 Compressor 21,000 30.7 % × 60,000 = 18,420 Total $68,400 100 % $60,000 2 $36,000 - $1,200 Case B Land ($160,000 × 1/4) + $4,000. ................................ $ 44,000 Building ($160,000 × 3/4) . ......................................... 120,000 The donation is recorded with a credit to contributed capital. Depreciation policy for the assets/donation have to be carefully considered: the credit to contributed capital might be amortized in a like fashion with the assets, to make the net change to income nil, as there
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/22/2009 for the course ACCOUNTING ACCT-351 taught by Professor Charko during the Fall '09 term at Humber.

Page1 / 18

Lesson%208%20Solutions - Suggested Solutions for ACCT 351...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online