Question Details

Moore Corporation follows a policy of a 10% depreciation charge 


Pr. 1—Asset acquisition.
Ford Inc. plans to acquire an additional machine on January 1, 2010 to meet the growing demand for its product. Stever Company offers to provide the machine to Ford using either of the options listed below (each option gives Ford exactly the same machine and gives Stever Company approximately the same net present value cash equivalent at 10%).
	Option 1 —	Cash purchase $800,000.
	Option 2 —	Installment purchase requiring 15 annual payments of $105,179 due December 31 each year.

The expected economic life of this machine to Ford is 15 years. Salvage value at that time is estimated to be $50,000. Straight-line depreciation is used. Interest expense under Option 2 is computed using the effective interest method.

Instructions
Based upon current generally accepted accounting principles, state how, if at all, the book value of the machine and the obligation should appear on the December 31, 2010 balance sheet of Ford Inc., for each option. Present your answer on an answer sheet in the following format. If an item should not appear in the balance sheet, write "not shown" opposite the option.
	                   Assets		                 Liabilities	
	Account Name	Amount 	Account Name	Amount
Option 1


Option 2


Pr. 2—Nonmonetary exchanges.
Moore Corporation follows a policy of a 10% depreciation charge per year on all machinery and a 5% depreciation charge per year on buildings. The following transactions occurred in 2011:
March 31, 2011—	Negotiations which began in 2010 were completed and a warehouse purchased 1/1/02 (depreciation has been properly charged through December 31, 2010) at a cost of $3,200,000 with a fair market value of $2,000,000 was exchanged for a second warehouse which also had a fair market value of $2,000,000. The exchange had no commercial substance. Both parcels of land on which the warehouses were located were equal in value, and had a fair value equal to book value.

June 30, 2011—	Machinery with a cost of $240,000 and accumulated depreciation through January 1 of $180,000 was exchanged with $150,000 cash for a parcel of land with a fair market value of $230,000.

Instructions
Prepare all appropriate journal entries for Moore Corporation for the above dates.



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