Reference no: EM132597525

Adamski Corporation manufactures ballet shoes and is in a period of sustained growth. In an effort to expand its production capacity to meet the increased demand for its products, the company recently made several acquisitions of plant and equipment. Tanya Mullinger, newly hired with the title Capital Asset Accountant, requested that Walter Kaster, Adamski's controller, review the following transactions:

Transaction 1

On June 1, 2020, Adamski purchased equipment from Venghaus Corporation. Adamski issued a $20,000, 4-year, non-interest-bearing note to Venghaus for the new equipment. Adamski will pay off the note in 4 equal instalments due at the end of each of the next 4 years. At the transaction date, the prevailing market interest rate for obligations of this nature was 10%. Freight costs of $425 and installation costs of $500 were incurred in completing this transaction. The new equipment qualifies for a $2,000 government grant.

Transaction 2

On December 1, 2020, Adamski purchased several assets of Haukap Shoes Inc., a small shoe manufacturer whose owner was retiring. The purchase amounted to $210,000 and included the assets in the following list. Adamski engaged Tennyson Appraisal Inc., an independent appraiser, to determine the assets' fair values, which are also provided.

Haukap           Book Value                   Fair Value

Inventory         $60,000                   $50,000

Land                 40,000                       80,000

Building             70,000                      120,000

                           $170,000              $250,000

• During its fiscal year ended May 31, 2021, Adamski incurred $8,000 of interest expense to finance these assets.

Transaction 3

On March 1, 2021, Adamski traded in four units of specialized equipment and paid an additional $25,000 cash for a technologically up-to-date machine that should do the same job as the other machines, but much more efficiently and profitably. The equipment that was traded in had a combined carrying amount of $35,000, as Adamski had recorded $45,000 of accumulated depreciation against these assets. Adamski's controller and the sales manager of the supplier company agreed that the new equipment had a fair value of $64,000.

Question 1: For each of the three transactions described above, determine the value at which Adamski Corporation should record the acquired assets.