Reference no: EM132647339
Question - Brown Company paid cash to purchase the assets of Coffee Company on January 1, 2019. Info is as follows:
Total cash paid 3,500,000
Assets acquired:
Land 600,000
Building 500,000
Machinery 900,000
Patents 500,000
The building is depreciated using the double-declining balance method. Other info is:
Salvage value 50,000
Estimate useful life in years 40
The machinery is depreciated using the units-of-production method. Other info is:
Salvage value, percentage of cost 10%
Estimate total production output 200,000
Actual production in units was:
2019 40,000
2020 60,000
2021 20,000
The patents are amortized on a straight-line basis. They have no salvage value.
Estimate useful life of patents 30 years.
On Dec. 1, 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 to acquisition and disposal. Its fiscal year-end is Dec. 31.
The machinery was traded on Dec. 2, 2021 for new machinery. Other info 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 20 years
Estimate salvage value of new machinery 8,064
The new machinery depreciated using the straight-line method.
On august 14, 2023, an addition was made. The amount was material. Other info is:
Amount of addition, paid in cash 100,000
Number of years of useful life from 2023 (original machinery and addition) 30 years
Salvage value, percentage of addition 10%
Required - 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 at December 31.
4. The trade-in of the old machinery and purchase of the new.
5. Depreciation on the new machinery for 2021.
6. Cost of the addition to the machinery on August 14, 2023.
7. Depreciation on the new machinery for 2023.