Equipment with an estimated market value of $30,000 is offered for sale at $45,000. The equipment is acquired for $15,000 in cash and a note payable of $20,000 due in 30 days. The amount used in the buyer's accounting records to record this acquisition is

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We start by restating the scenario: An item of equipment with an estimated market value of $30,000 is offered for $45,000. The buyer pays $15,000 in cash and signs a note payable for $20,000 due in 30 days. The question asks for the amount to record in the buyer's accounting records for this acquisition.

Option 1: $30,000. This would fix the asset at the market value of the equipment. However, under usual cost-measurement practice, the asset should be recorded at the fair value of the consideration surrendered if that is clearly evident, which often reflects the actual economic outlay to acquire the asset. Since the buyer is giving $15,000 cash plus a $20,000 note, the consideration surrendered has a total fair value of $35,000, not $30,000. Therefore recording at $30,000 would understate the outlay and misstate the cost.

Option 2: $35,000. This amount equals the fair value of the consideration surrendered by the buyer: $15,000 cash plus a $20,000 note payable. In cost accounting and acquisition accounting, the asset is typically recorded at the fair value of the consideration given, or, if more clearly evident, the asset's fair value. Here, the clearly evident measure is the $35,000 of consideration exchanged, so the equipment should be recorded at $35,000. Recording at $35,000 aligns the asset’s cost with the actual resources transferred to acquire it and establishes the appropriate basis for depreciation and future impairment analysis.

Option 3: $15,000. This would only reflect the cash portion paid, ignoring the note payable incurred for the remaining $20,000. It would understate the total consideration and the asset’s cost, leading to an understated depreciation base and potential later misstatements of liability and equity interactions.

Option 4: $45,000. This is the asking price or quoted price for the sale, but the accounting entry should reflect the actual resources exchanged to acquire the asset, not the listing price. Recording at $45,000 would overstate the cost unless the seller’s terms clearly justify treating the note and cash as equal to $45,000, which they do not in this scenario.

In summary, the most accurate accounting treatment recognizes the fair value of the consideration surrendered (the cash plus the note), which totals $35,000. This provides the correct cost basis for the equipment, rather than the market value, the cash-only amount, or the initial asking price. The reasoning hinges on cost measurement principles and the need to reflect the resources sacrificed to obtain the asset.

Equipment with an estimated market value of $30,000 is offered for sale at $45,000. The equipment is acquired for $15,000 in cash and a note payable of $20,000 due in 30 days. The amount used in the buyer's accounting records to record this acquisition is

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