Rip Roaring Roy is expanding his business. On March 1, 2017 he purchased an existing factory (land, building, and equipment) for $4,375,000 by paying $500,000 down and signing a 30 year 8 % note. He also paid $400,000 in realtor commissions, $35,000 in past due property taxes, $3,000 in documentary stamps required to register his deed with the county, and $12,000 in attorneys fees. He hired an appraiser who appraised the assets as follows:

Land 465,000

Building 3,895,000

Equipment 560,000

Rip Roaring Rays accountant (Cocky Poulet) made the following journal entries on 1 March to record this purchase:

1 March Realtor commissions expense 400,000

Property tax expense 35,000

Miscellaneous expense 3,000

Legal fees expense 12,000

Cash 450,000

To record expenses incurred in purchase of land, building and equipment

1 March Land 465,000

Building 3,895,000

Equipment 560,000

Cash 500,000

Note payable 3,875,000

Gain on purchase 545,000

To record purchase of land, building and equipment

Required:

1. Are Cockys entries correct? If not, please give the correct entry(ies).

2. Ray determined the following information for depreciation. Prepare the adjusting journal entries that will be recorded at 31 December 2017, the end of Rays current fiscal year.

a. Building, 30-year life, $600,000 residual value, straight-line depreciation method.

b. Equipment :

i. of the equipment has a life of 400,000 units with a residual value of $15,000. 35,000 units were produced this year, units of production depreciation

ii. of the equipment has a 10-year life, residual value of $8,000, double declining balance depreciation.