Banks Beer PLC (BBP), manufacturer, wholesaler and retailer of beers, made the following property, plant and equipment acquisitions during the year 2019. The following journal entries were presented to you by the new and inexperienced Accounts Clerk under your supervision for review.
Jan 20: BBP built a warehouse for $600,000. It could have purchased a warehouse building for $740,000. The entry made was:
Building $740,000
Cash $600,000
Profit on Construction 140,000
Mar 1: BBP purchased office equipment for $20,000, terms 2/10, n/30. Because BBP intended to take the discount, it made no entry until it paid for the acquisition. The entry made was:
Equipment $20,000
Cash $19,600
Purchase Discounts 400
Apr 4: BBP purchased store equipment by making a $2,000 cash down payment and signing a 1-year $23,000, 10% note payable. The acquisition was recorded as follows:
Equipment $27,300
Cash $ 2,000
Note Payable 23,000
Interest Payable 2,300
Jun 12: BBP acquired land, buildings and equipment from Corona Ltd, a bankrupt company, for a lump-sum amount of $680,000. At the time of the purchase, Corona’s assets had the following book and appraisal values.
Book Values Appraisal Values
Land $200,000 $150,000
Buildings 230,000 350,000
Equipment 300,000 300,000
To be conservative, the Accounts Clerk decided to take the lower of the two values for each asset acquired. The following entry was made:
Land $150,000
Buildings 230,000
Equipment 300,000
Cash $680,000
Required:
Review all of the accounting entries made by your junior staff and make any necessary correction to reflect the entry that should have been made at the date of each acquisition.