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%



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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