Question

Problem 5 Stillwater Manufacturing, Inc. was January par value stock for $250.000. Ws formed on January 1 by šsuing 100000 shares of $i par value stock for $250,000. On that same date. Stilwater Manufacturing 9. Inc. acquired a piece of machinery and a truck $161,000 and the truck had a list price of $69.000. as part of one purchase for $200.000 cash. The machine had a list price of Freight cost amount to $1.300 for the machinery only. There was no delivery charge associated with the truck. The company had to hire a specialist to calibrate ir machine. The specialist's fee was $900. The machine operator is paid an annual salary of $50,000. The employee that will drive the truck is paid an annual salary of $75,000. The cost of the company's theff insurance policy increased by $600 per year as a result of acquiring the machine. The machine has a 10-year useful ife and an expected salvage value of $15,000. The truck has a S-year useful life and an expected salvage value of $19.000. Record the above transactions related to the (1) issuance of common stock. [2) purchase of the machine and truck (include all costs that should be capitalized). (3) depreciation on the machine for the first full year of operation, and (4) depreciation on the truck for the first full year of operation. Income Cash Statement Flow Net Balance Sheet Assets A. | C. | PIC in | R. Cash Mach. Truck Depr Stock Excess Earn Rev. Exp. Bal What is the net amount of property. plant, and equipment that will appear on Stillwater Manufacturing's balance sheet at the end of this year?

Answer 1

Cost of the fixed assets consists of the following: i) its purchase price, import duty and non refundable taxes. Any trade discount and rebate should be excluded ii) cost directly attributable for bringing the assets their present location and condition which is necessary for the operation of the assets Some examples of the directly attributable costs are delivery and handling cost, installation and assembly cost, site preparation cost, testing cost incurred ensure assets is properly functioning or not. Allocation of Purchase Price Particulars Step 1 Ratio (A) /$230000 List Price Cost Allocation Step 2 Purchase price of Machinery $140,000 $1,300 $900 $142,200 Add: Freight Add: Calibration charges Total Cost of Machine Machinery Truck Total $161,000 $69,000 $230,000 70% 30% $140,000 [$200000 x 70%) $60,000 [$200000 x 30%) $200,000 Straight Line Depreciation = (Cost-Salvage)/Useful life Particulars Cost Salvage Value Useful Life Depreciation Step 3 Machine Truck $142,200 $15,000 10 $12,720 $60,000 $19,000 $8,200 [(S142000- $15000)/10] $19000),/5) [($60000-

Balance Sheet Income Statement Assets Equi n Stock Excess $100,000 $150,000 Cash Flow Accumulated Depreciation PIC in Retained Excess Earnings Net Cash Mach Truck Revenue Expense Income 1$250,000 2 250,000 ($202,200 ($202,200 $142,200 $60,000 $12,720 $8,200 12,720 $8,200 $12,720 ($12,720) NA $8,200 ($8,200) NA 4 Note : Par value of Share is $1-Common stock [100000 x $1] = $100000 and PIC in Excess [100000 x $1.5-$150000 The salary of machine operator, truck driver and insurance expenses are the operating expense. It won't be capitalised Stil Water Manufacturing Inc. Balance Sheet(Partial Particulars Assets Property, Plant and Equipment Machinery Less: Accumulated Depreciation Machinery Truck Less: Accumulated Depreciation Truck Property, Plant and Equipment (Net) Amount Amount $142,200 $12,720 $129,480 $60,000 $8,200 $51,800 $181,280