106. Shevitz Limited purchased for cash a plant, including land, buildings and machinery, for $450,000 from Hite Company. These items were carried on Hite's books as follows: land, $150,000; building, $140,000; and machinery, $20,000. Immediately after the purchase, Shevitz employed a reliable firm to appraise the assets, with the following results: land, $220,000; building, $190,000; and machinery, $75,000. Prepare the journal entry to record this purchase in Shevitz's accounting records.
A bundled purchase, so it is necessary to compute values assigned to each based on their portion of relative appraised value. 220,000 + 190,000 + 75,000 = $485,000
107. Hull Corporation recently purchased a new numerically controlled fabricating machine and incurred the following costs related to its purchase. After the machine arrived it took one week to install it and run quality control tests on it.
$450,000 Invoice cost
$70,000 Taxes and duties
$12,500 Shipping and installation
$10,500 Cost to send three employees to the manufacturer in Germany for two days of training
$8,750 Rewiring of the area where the machine will be installed
$6,500 Labour costs during one-week testing and installation period.
$1,250 Production foreman's weekly salary during the testing period
$112,500 Estimated total interest cost on the 5-year loan used to finance the purchase
Required:
A) Assume Hull Corporation's accounting objective is to minimize taxes; calculate the cost to them of the new machine. If any of the costs are excluded, provide a brief explanation.
B) How would your answer to A differ if their objective were to maximize income?