Suggested Solutions for ACCT 351
Adapted from Beechy, T. H., & Conrod, J. E. D. (2005).
Solutions manual to accompany intermediate accounting, volume 1
ed.). Toronto: McGraw-Hill Ryerson. Reproduced with permission.
Page 1 of 18
(text, p. 518)
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.
Cost is $80,000.
The difference between the appraised value of the land and the so-called
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.
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
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.