Brown Company paid cash to purchase the assets of Coffee Company on January 1, 2019. Information is as follows:
Total cash paid $2,990,000
Assets acquired:
Land $600,000
Building $600,000
Machinery $500,000
Patents $600,000
The building is depreciated using the double-declining balance method. Other information is:
Salvage value $60,000
Estimated useful life in years 30
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 400,000
Actual production in units was as follows:
2019: 40,000
2020: 80,000
2021: 120,000
The patents are amortized on a straight-line basis. They have no salvage value.
Estimated useful life of patents in years 20. On December 31, 2020, the value of the patents was estimated to be $900,000
Where applicable, the company uses the ½ 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 $336,000
List price for new machinery $504,000
Estimated useful life of new machinery in years 20
Estimated salvage value of new machinery $15,120
The new machinery if depreciated using the straight-line method and ½ 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): 20
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.
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