Question

Allocation of Package Purchase Price and Depreciation Methods

To expand its business, Renee Company paid $760,000 for most of the property, plant, and equipment of a small trucking company that was going out of business. Before agreeing to the price, Renee hired a consultant for $10,000 to appraise the assets. The appraised values were as follows:

Property	Assessed Value
Land	$120,000
Building	440,000
Trucks	144,000
Equipment	96,000
Total	$800,000

Renee issued two checks totaling $770,000 to acquire the assets and pay the consultant on July 1. Renee depreciated the assets using the straight-line method on the building and on the equipment, and the double-declining balance method on the trucks. Estimated useful lives and salvage values were as follows:

	Useful Life	Salvage Value
Building	20 years	$42,000
Trucks	4 years	15,000
Equipment	8 years	10,000

a. Calculate the amounts allocated to the various types of plant assets acquired on July 1.

Asset	Total
Land	Answer
Building	Answer
Trucks	Answer
Equipment	Answer

b. Prepare the July 1 journal entry to record the purchase of the assets and the payment to the consultant. Combine both cash disbursements into one journal entry.

General Journal
Date	Description	Debit	Credit
July 1	Land	Answer	Answer
	Building	Answer	Answer
	Trucks	Answer	Answer
	Equipment	Answer	Answer
	Cash	Answer	Answer
	To record purchase of plant assets and payment to consultant.

c. Prepare the December 31 journal entries to record depreciation expense for the year on the building, trucks, and equipment. (Round to the nearest dollar.)

General Journal
Date	Description	Debit	Credit
Dec. 31	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	To record depreciation on building.
Dec. 31	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	To record depreciation on trucks.
Dec. 31	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	To record depreciation on equipment.

Answer 1

a. Calculate the amounts allocated to the various types of plant assets acquired on July 1.

Asset	Total
Land	770000/800000*120000 = 115500
Building	423500
Trucks	138600
Equipment	92400

b. Prepare the July 1 journal entry to record the purchase of the assets and the payment to the consultant. Combine both cash disbursements into one journal entry.

General Journal
Date	Description	Debit	Credit
July 1	Land	115500
	Building	423500
	Trucks	138600
	Equipment	92400
	Cash		770000
	To record purchase of plant assets and payment to consultant.

c. Prepare the December 31 journal entries to record depreciation expense for the year on the building, trucks, and equipment. (Round to the nearest dollar.)

General Journal
Date	Description	Debit	Credit
Dec. 31	Depreciation expense (423500-42000/20)	19075
	Accumulated depreciation-Building		19075
	To record depreciation on building.
Dec. 31	Depreciation expense (138600-15000/4)	30900
	Accumulated depreciation-Trucks		30900
	To record depreciation on trucks.
Dec. 31	Depreciation expense (92400*25%)	23100
	Accumulated depreciation-Equipment		23100
	To record depreciation on equipment.