I would like to re-submit this problem for completion because I am still struggling to understand it. I had completed up to #4 on the "Required" section, but now I am doubtful that I understand the beginning concepts.
Brown Company paid cash to purchase the assets of Coffee Company on January 1, 2019. Information is as follows: $4,500,000 Total cash paid Assets acquired: $800,000 Land $700,000 Building $800,000 Machinery $700,000 Patents The building is depreciated using the double-declining balance method. Other information is: $70,000 Salvage value 20 Estimated useful life in years The machinery is depreciated using the units-of-production method. Other information is: 10% Salvage value, percentage of cost 100,000 Estimated total production output in units Actual production in units was as follows: 20,000 2019 20,000 2020 30,000 2021 The patents are amortized on a straight-line basis. They have no salvage value. 40 Estimated useful life of patents in years 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: $400,000 Fair value of old machinery $600,000 Trade-in allowance $840,000 List price for new machinery 10 Estimated useful life of new machinery in years $8,400 Estimated salvage value of new machinery 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: $400,000 Amount of addition, paid in cash Number of years of useful life from 2023 (original 20 machinery and addition): 10% Salvage value, percentage of addition 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 1) Jan. 1 Land Building Machinery Patents Goodwill Cash Record Purchase of Coffee Company Assets 800,000 700,000 800,000 700,000 1,500,000 2) Dec. 31 Depreciation Expense - Building Depreciation Expense - Machinery Amortization Expense - Patents Accum. Decpreciation - Building Accum. Decpreciation - Machinery Patents Record Depreciation & Amortization Expense 35,000 144,000 8,750 Dec. 31 Impairment Loss Patents Record Patents to Estimated Value at December 31, 2020 573,750 3) Credit 4,500,000 35,000 144,000 8,750 573,750 Copyright 2018 David Annand Published by David Annand Box 308, Rochester AB T0G 1Z0 ISBN: 978-0-9953266-6-8 Library and Archives Canada Cataloguing in Publication Annand, David, 1954- This case is licensed under a Creative Commons License, Attribution-Noncommercial-Share Alike 4.0 USA see www.creativecommons.org. This material may be reproduced for non-commercial purposes and changes may be used by others provided that credit is given to the author. To obtain permission for uses beyond those outlined in the Creative Commons license, such as personalized assignments for students, please contact David Annand at davida@athabascau.ca. Latest version available at https://open.bccampus.ca/find-open-textbooks/ Please forward suggested changes to davida@athabascau.ca. First US Edition July 31, 2018
