Bramble Company, a manufacturer of ballet shoes, is experiencinga period of sustained growth. In an effort to expand its productioncapacity to meet the increased demand for its product, the companyrecently made several acquisitions of plant and equipment. RobJoffrey, newly hired in the position of fixed-asset accountant,requested that Danny Nolte, Bramble’s controller, review thefollowing transactions.
Transaction 1: On June 1, 2017, Bramble Company purchasedequipment from Wyandot Corporation. Bramble issued a $30,800,4-year, zero-interest-bearing note to Wyandot for the newequipment. Bramble will pay off the note in four equal installmentsdue at the end of each of the next 4 years. At the date of thetransaction, the prevailing market rate of interest for obligationsof this nature was 9%. Freight costs of $417 and installation costsof $460 were incurred in completing this transaction. Theappropriate factors for the time value of money at a 9% rate ofinterest are given below. Future value of $1 for 4 periods 1.41
Future value of an ordinary annuity for 4 periods 4.57
Present value of $1 for 4 periods 0.71
Present value of an ordinary annuity for 4 periods 3.24
Transaction 2: On December 1, 2017, Bramble Company purchasedseveral assets of Yakima Shoes Inc., a small shoe manufacturerwhose owner was retiring. The purchase amounted to $216,000 andincluded the assets listed below. Bramble Company engaged theservices of Tennyson Appraisal Inc., an independent appraiser, todetermine the fair values of the assets which are also presentedbelow.
Yakima Book Value Fair Value
Inventory $62,000 $52,000
Land 40,500 77,000
Buildings 75,200 121,000
$177,700 $250,000
During its fiscal year ended May 31, 2018, Bramble incurred$7,230 for interest expense in connection with the financing ofthese assets.
Transaction 3: On March 1, 2018, Bramble Company exchanged anumber of used trucks plus cash for vacant land adjacent to itsplant site. (The exchange has commercial substance.) Brambleintends to use the land for a parking lot.
The trucks had a combined book value of $32,390, as Bramble hadrecorded $19,130 of accumulated depreciation against these assets.Bramble’s purchasing agent, who has had previous dealings in thesecondhand market, indicated that the trucks had a fair value of$42,140 at the time of the transaction. In addition to the trucks,Bramble Company paid $19,720 cash for the land.
(b) For each of the three transactions described above,determine the value at which Bramble Company should record theacquired assets. (Round intermediate calculations to 5 decimalplaces, e.g. 1.25124 and final answers to 0 decimal places e.g.58,971.)
