Akira Ltd., purchased a building near Montreal and the land on which it was built for $850,000. The previous owner paid $1,200,000 for the land and building. A recent independent appraisal valued the land and building at a market value of $1,000,000, of which $400,000 was attributed to the land.

Akira paid $250,000 is cash and signed a note for $600,000, payable in one year. Akira also paid $50,000 in legal fees and $10,000 for unpaid property taxes. Akira spent $160,000 on renovations and alterations to the building so it would be suitable for the companys purposes. The building is estimated to have a useful life of 20 years and a residual value of $80,000.

Akira also purchased machinery with a list price of $320,000, but the company received a 5% cash discount for prompt payment. Akira paid $22,000 for transportation of the machinery and $24,000 for installation costs. The machinery has no residual value and is expected to produce 700,000 units of product over its economic useful life. 30,000 units were produced during the first year and 48,000 units were manufactured in the second year.

In addition, Akira purchased five identical delivery trucks for a total of $300,000. The trucks have an estimated useful life of five years and a residual value of $8,000 each. Licensing and insurance fees for the five trucks amounted to $5,000, which the company paid in cash.

Akira uses the following methods to depreciate these assets:

• Building: Straight-line
• Machinery: Units of production
• Trucks: Declining balance, using a rate of 30% of the carrying amount (net book value)

1. Prepare journal entries to record the purchase of the land, building, machinery and trucks in separate asset accounts. (11 marks)