Allocation of Package Purchase Price and Depreciation Methods

To expand its business, Renee Company paid $$760,000$ for most of the property, plant, and equipment of a small trucking company that was going out of business. Before agreeing to the price, Renee hired a consultant for $$10,000$ to appraise the assets. The appraised values were as follows:

Property Assessed

Value

Land $$120,000$

Building $440,000$

Trucks $144,000$

Equipment $96,000$

Total $$800,000$

Renee issued two checks totaling $$770,000$ to acquire the assets and pay the consultant on July $1.$ Renee depreciated the assets using the straight$-$line method on the building and on the equipment, and the double$-$declining balance method on the trucks. Estimated useful lives and salvage values were as follows:

Useful Life Salvage

Value

Building $20$ years $$42,000$

Trucks $4$ years $15,000$

Equipment $8$ years $10,000$

a$.$ Calculate the amounts allocated to the various types of plant assets acquired on July $1.$

Asset Total

Land Answer

$115,500$

Building Answer

$423,500$

Trucks Answer

$138,600$

Equipment Answer

$92,400$

b$.$ Prepare the July $1$ journal entry to record the purchase of the assets and the payment to the consultant. Combine both cash disbursements into one journal entry.

General Journal

Date Description Debit Credit

July $1$ Land Answer

$115,500$

Answer

$0$

Building Answer

$423,500$

Answer

$0$

Trucks Answer

$138,600$

Answer

$0$

Equipment Answer

$92,400$

Answer

$0$

Cash Answer

$0$

Answer

$770,000$

To record purchase of plant assets and payment to consultant.

c$.$ Prepare the December $31$ journal entries to record depreciation expense for the year on the building, trucks, and equipment. $($Round to the nearest dollar.$)$

General Journal

Date Description Debit Credit

Dec. $31$ Answer

Depreciation Expense $-$ Building

Answer

$9,538$

Answer

$0$

Answer

Accumulated Depreciation $-$ Building

Answer

$0$

Answer

$9,538$

To record depreciation on building.

Dec. $31$ Answer

Depreciation Expense $-$ Trucks

Answer

Answer

$0$

Answer

Accumulated Depreciation $-$ Trucks

Answer

$0$

Answer

To record depreciation on trucks.

Dec. $31$ Answer

Depreciation Expense $-$ Equipment

Answer

$5,150$

Answer

$0$

Answer

Accumulated Depreciation $-$ Equipment

Answer

$0$

Answer

$5,150$

To record depreciation on equipment.