question archive Brown Company paid cash to purchase the assets of Coffee Company on January 1, 2019

Brown Company paid cash to purchase the assets of Coffee Company on January 1, 2019

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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: 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.

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