Forest Company paid $38,000,000 for a warehouse and related assets from a company that was in bankruptcy. The warehouse includes land, building, moving equipment, and heating/ventilation/air conditioning (HVAC) system. An independent appraiser valued these items individually as follows:

PPE category Appraised value

Land $10,400,000

Building 23,400,000

Moving equipment 3,900,000

HVAC system 14,300,000

Total $52,000,000

Required:

Allocate the purchase price among the assets acquired. (4 marks)

Question 4

A building costing $7,000,000 was purchased on January 1, 2020. Based on management's best estimates, the useful life of the building was estimated to be 40 years, with no residual value. During 2026 it was discovered that the local government had plans to build a freeway where the building stands. This project would require significant engineering and regulatory approval, so the site would be expropriated by January 1, 2032. The government agreed to pay $320,000 compensation for the building. The company has a December 31 year-end.

Required:

Prepare the journal entries to record depreciation for 2020 and 2026. The company uses straight-line depreciation. (4 marks

Question 5

A machine was purchased during 2019 for $3,750,000. At the time of purchase, it was estimated that the machine would have a useful life of ten years and a residual value of $750,000. During 2025 the machine was sold for $1,850,000. The company uses straight-line depreciation, but does not record depreciation expense in the year of acquisition or disposal. (8 marks)

Required:

a. Prepare the journal entry to record the derecognition of the asset in 2025.

b. Assume that rather than using the straight-line method, the company uses the declining balance method of depreciation at a 20% rate. Prepare the journal entry to record the derecognition of the asset in 2025.