Asset acquisition.
Ford Inc. plans to acquire an additional machine on January 1, 2014 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 $2,400,000.
Option 2 - Installment purchase requiring 15 annual payments of $315,537 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 $150,000. 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 liability should appear on the December 31, 2014 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.

Question

Asset acquisition.
Ford Inc. plans to acquire an additional machine on January 1, 2014 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 $2,400,000.
Option 2 - Installment purchase requiring 15 annual payments of $315,537 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 $150,000. 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 liability should appear on the December 31, 2014 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.

Quizplus · Accepted Answer

The Answer of Asset acquisition.
Ford Inc. plans to acquire an additional machine on January 1, 2014 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 $2,400,000.
Option 2 - Installment purchase requiring 15 annual payments of $315,537 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 $150,000. 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 liability should appear on the December 31, 2014 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.

Asset Acquisition. Ford Inc. Plans to Acquire an Additional Machine on January