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: Land Building $875k Equipment $625k PatentS550k S450k 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 80 Use the information above: N/A 40 25 N/A 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

Answer 1. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1-Apr-18 Land    360,000.00 Building    700,000.00 Equipment    500,000.00 Patent    440,000.00    Cash    2,000,000.00 (To record the purchase of Assets) Fair Value % Allocated Cost Land        450,000.00 18.00%           360,000.00 Building        875,000.00 35.00%           700,000.00 Equipment        625,000.00 25.00%           500,000.00 Patent        550,000.00 22.00%           440,000.00    2,500,000.00        2,000,000.00 Answer 2. Depreciation Per annum - Buildings = (Cost - Salavage Value) / Life of Assets Depreciation Per annum - Buildings = ($700,000 - $175,000) / 40 Years Depreciation Per annum - Buildings = $13,125 per annum Caclucluation of Book Value of Building - Dec 31, 2019 Cost of Building        700,000.00 Dep - 2018 - $13,125 X 7/12            7,656.25 Book Value as on Dec 31, 2018        692,343.75 Dep - 2019          13,125.00 Book Value as on Dec 31, 2019        679,218.75 Depreciation Per annum - Equipment = ($500,000 - $150,000) / 25 Years Depreciation Per annum - Equipment = $14,000 per annum Caclucluation of Book Value of Equipment - Dec 31, 2019 Cost of Equipment        500,000.00 Dep - 2018 - $14,000 X 7/12            8,166.67 Book Value as on Dec 31, 2018        491,833.33 Dep - 2019          14,000.00 Book Value as on Dec 31, 2019        477,833.33 Answer 3. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Dec-18 Amortization Expenses      10,500.00    Accumulated Amortization - Patent          10,500.00 (To record the amortization expenses) Amortization Exp. Per annum - Patent = ($440,000 - $80,000) / 20 Years Amortization Exp. Per annum - Patent = $18,000 per annum Amortization Exp. 2018 - Patent = $18,000 X 7/12 = $10,500