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Review Ch. 10 - LOGAN INDUSTRIES Acquisition of Assets 1...

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LOGAN INDUSTRIES Acquisition of Assets 1 and 2 Use appraised values to break-out the lump-sum purchase Description Appraisal Percentage Lump-Sum Value on Books Machinery $ 90,000 90/120 $104,000 $78,000 Office Equipment 30,000 30/120 104,000 26,000 $120,000 Machinery ............................................................... 78,000 Office Equipment ................................................... 26,000 Cash .............................................................. 104,000 Acquisition of Asset 3 Use the cash price as a basis for recording the asset with a discount recorded on the note. Machinery ............................................................... 35,900 Discount on Notes Payable ($40,000 $35,900) ...... 4,100 Cash .............................................................. 10,000 Notes Payable ............................................... 30,000 Acquisition of Asset 4 Since the exchange lacks commercial substance, a gain will be recognized in the proportion of cash received ($10,000/$80,000) times the $16,000 gain (FMV of $80,000 minus BV of $64,000). The gain recognized will then be $2,000 with $14,000 of it being unrecognized and used to reduce the basis of the asset acquired. Machinery ($70,000 $14,000) ............................ 56,000 Accumulated Depreciation .................................. 36,000 Cash ..................................................................... 10,000 Machinery .................................................... 100,000 Gain on Disposal of Machinery
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