E10.

16 (LO2, 3) (Asset Acquisition) Logan Industries purchased the following assets and constructed
a building as well. All this was done during the current year. Assets 1 and 2: These assets were
purchased as a lump sum for €104,000 cash. The following information was gathered. Description
Initial Cost on Seller's Books Depreciation to Date on Seller's Books Book Value on Seller's Books
Appraised Value Machinery €100,000 €50,000 €50,000 €90,000 30,000 50,000 10,000 60,000
Equipment Asset 3: This machine was acquired by making a €10,000 down payment and issuing a
€30,000, 2-year, zero-interest-bearing note. The note is to be paid off in two €15,000 installments
made at the end of the first and second years. It was estimated that the asset could have been
purchased outright for €35,900. Asset 4: This machinery was acquired by trading in used machinery.
(The exchange lacks commercial substance.) Facts concerning the trade-in are as follows. Cost of
machinery traded €100,000 Accumulated depreciation to date of sale 36,000 Fair value of machinery
traded 80,000 Cash received 10,000 Fair value of machinery acquired 70,000 Asset 5: Equipment was
acquired by issuing 100 shares of €8 par value ordinary shares. The shares have a market price of
€11 per share. Construction of Building: A building was constructed on land with a cost of €180,000.
Construction began on February 1 and was completed on November 1. The payments to the
contractor were as follows. Date Payment 2/1 €120,000 6/1 360,000 9/1 480,000 11/1 100,000 To
finance construction of the building, a €600,000, 12% construction loan was taken out on February
1. The loan was repaid on November 1. The firm had €200,000 of other outstanding debt during the
year at a borrowing rate of 8%.

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