Question
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 Assets acquired:
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 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 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 units 200,000
Actual production in units was as follows:
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 years 30
On December 31, 2020, the value of the patents was estimated to be $100,000
Where applicable, the company uses the 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 years 20
Estimated salvage value of new machinery $8,064
The new machinery if depreciated using the stright-line method and year rule. 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 at December 31, 2020.
4 The trade-in of the old machinery and purchase of the new machinery.
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.
Brown Company
GENERAL JOURNAL
Dec.
2019
Description
PR
Debit
Credit
Brown Company
GENERAL JOURNAL
Dec.
2019
Description
F
Debit
Credit
Brown Company
GENERAL JOURNAL
Dec.
2019
Description
F
Debit
Credit
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Management And Cost Accounting
Authors: Alnoor Bhimani, Srikant M. Datar, Charles T. Horngren, Madhav V. Rajan
7th Edition
1292232668, 978-1292232669
