Reference no: EM132643999
Brown Company paid cash to purchase the assets of Coffee Company on January 1,2019. Information is as follows:
Total cash paid 3,500,000
Land 600,000
Building 500,000
Machinery 900,000
Patents 500,000
The building is depreciated using the double-declining balance method. Other information is:
Salvage value 50,000
Estimated useful life in years 40
The machinery is depreciated using the units-of-production method. Other information is:
Salvage value, percentage of cost 10%
Estimated total production output in 200,000
Actual production in units was as
2019 40,000
2020 60,000
2021 20,000
The patents are amortized on a straight-line basis. They have no salvage value.
Estimated useful life of patents in 30
On December 31, 2020, the value of the patents was estimated to be 100,000
Where applicable, the company uses the 1/2 year rule to calculate depreciation and amortization expense in the years of acquisition and disposal. Its fiscal year-end is December 31.
The machinery was traded on December 2, 2021 for new machinery. Other information is:
Fair value of old machinery 240,000
Trade-in allowance 288,000
List price for new machinery 403,200
Estimated useful life of new machinery in 20
Estimated salvage value of new 8,064
The new machinery is depreciated using the straight-line method and
On August 14, 2023, an addition was made. This amount was material. Other relevant information is as follows:
Amount of addition, paid in cash 100,000
Number of years of useful life from 2023
(original machinery and addition): 30
Salvage value, percentage of addition 10%
Required:
Problem a: Prepare journal entries to record:
1 The purchase of the assets of Coffee.
2 Depreciation and amortization expense on the purchased assets for 2019.
3 The decline (if any) in value of the patents on December 31
4 The trade-in of the old machinery and purchase of the new
5 Depreciation on the new machinery fro 2021.
6 Cost of the addition to the machinery on August 14, 2023.
7 Depreciation on the new machinery for 2023.