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Exercise 10-16 - EXERCISE 10-16(2535 minutes Hayes...

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EXERCISE 10-16 (25–35 minutes) Hayes 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 90/120 100,000 75,000 Office Equipment 30,000 30/120 100,000 25,000 120,000 Machinery .......................................................................... 75,000 Office Equipment ............................................................ 25,000 Cash .......................................................................... 100,000 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 10-29 EXERCISE 10-16 (Continued) Acquisition 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 $20,000 gain (FMV of $80,000 minus BV of $60,000). The gain recognized will then be
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$2,500 with $17,500 of it being unrecognized and used to reduce the basis of the asset acquired. Machinery ($70,000 – $17,500) ................................. 52,500 Accumulated Depreciation ........................................ 40,000 Cash .................................................................................. 10,000 Machinery ............................................................. 100,000 Gain on Disposal of Machinery
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