Question 6 20 Points On April 1 2018 ABC purchased an existi

Question 6: 20 Points On April 1, 2018, ABC purchased an existing factory for 2 million. The price included title to land, the factory building, manufacturing equipment, and a patent on a process the equipment uses. At the time of the purchase, the assets fair value were: S450k Building $875k Equipment$625k $550k Lan Patent The company placed the assets into use on June 1, 2018 and decided that salvage value and estimate life of the assets urchased would be: Asset Salvage Value Estimate Life- (yrs.) Land Building 175k Equipment 150k Patent 80k N/A N/A 25 0 Use the information above: 1. Prepare the journal entry to record the purchase on April 1, 2018 2. If ABC uses straight-line depreciation, what is the book value of the building and equipment as of December 31, 2019? 3. Prepare the journal entry to record the amortization expense (2018) for the Patent, assuming the company uses straight-line depreciation

Solution

1.

1	Calculate each asset’s percent of market value (Asset market value / total market value of all assets)
	Then Calculate the cost of each asset (total price paid for all assets x % of market value)
	Asset	Fair value(A)	% to market value(B= A/sum of A)%	Asset cost(2 mio*B)
	Land	450	18%	360000
	Building	875	35%	700000
	Equipment	625	25%	500000
	Patent	550	22%	440000
	Total	2500		2000000