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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
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 200,000
Actual production in units was as
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 30
On December 31, 2020, the value of the patents was
estimated to be 100,000

Where applicable, the company uses the 1/2 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 20
Estimated salvage value of new 8,064
The new machinery is depreciated using the straight-line method and

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 on December 31
4 The trade-in of the old machinery and purchase of the new
5 Depreciation on the new machinery fro 2021.
6 Cost of the addition to the machinery on August 14, 2023.
7 Depreciation on the new machinery for 2023.
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Journal enries
Date Debit Credit
01/01/2019 Land A/c 600000
Building A/c 500000
Machinery A/c 900000
Patents A/c 500000
Goodwill A/c(Balancing) 1000000
Cash A/c 3500000

31/12/2019 Depreciation 203667

Acc Dep-Building 25000
Acc Dep-Machinery 162000
Acc Dep-Patents 16667

31/12/2020 Depreciation in Value 366666

Patents 366666 (500000-16667-16667-100000)

02/12/2021 New Machine 355200

Machine 240000
Cash 115200
31/12/2021 Dep 8678.4
Acc. Dep 8678.4

14/08/2023 New Machinery 100000

Cash 100000

31/12/2023 Dep 20158.56

Acc. Dep 20158.56
Image transcription text
Journal enries Date Debit Credit 01/01/2019 Land A/c 600000 Building A/c 500000 Machinery
A/c 900000 Patents A/c 500000 Goodwill A/c(Balancing) 1000000 To Cash A/c 3500000
31/12/2019 Depreciation 203667 Acc Dep-Building 25000 Acc Dep-Machinery 162000 Acc
Dep-Patents 16667 31/12/2020 Depreciation in Value 366666 Patents 366666 (500000-16667-
16667-100000) 02/12/2021 New Machine 355200 Machine 240000 Cash 115200 31/12/2021
Dep 8678.4 Acc. Dep 8678.4 14/08/2023 New Machinery 100000 Cash 100000 31/12/2023 Dep
20158.56 Acc. Dep 20158.56 Notes 1 Goodwill =Consideration-land-building-Machinery-
Patents = 3500000-600000-500000-900000-500000 = 1000000 2 Buidling Depreciation
Calculation Building Dep=2 X $500000/40 yrs =$25000 Machinery Depreciation Machinery
Value= Cost-Salvage Value(10% of cost) =$900000-$90000(900000 X 10%) = $810000
Depreciation=$810000/200000 units X 40000 units = $162000 Patents Depreciation Patents
Depreciation= $500000/30 = $16667 3 Patent value has declined to 100000 4 Cash Paid for
New Machine Cash Paid=List Price-Trade Allowance = $403200-$288000 =$115200 Cost of
new Machine=Cash Paid+Asset Given up = $115200+$240000(Fair Value of Machine) =
$355200 5 Dep for the new Machine for 2021 the company uses the 1/2 year rule to calculate
depreciation and amortization expense in the years of acquisition and disposal. Its fiscal year-
end is December Machine Dep= $355200-$8064/20 =17356.80 X 6/12 = $8678.40 7 Dep. For
2023 Calculation For New Addition Machine Dep= $100000-$10000/30 X 6/12 = $3000 X 6/12
= $1500 For Existing Machine WDV as on 2023=$355200+(8678.40 + 18/6) =
$355200+26035.20 = $381235.20 Machine Dep=$381235.20-$8064/20yrs = $18658.56 Total
Dep=$1500+18658.56 = $20158.56