Blue Inc. has been experiencing growth in the demand for its products over the last several years. International road ra

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Blue Inc. has been experiencing growth in the demand for
its products over the last several years. International road racing
combined with the Olympics greatly increased the popularity of both
recreational and competitive biking around the world. As a result,
a sports retailing consortium entered into an agreement
with Blue to purchase a full line of recreational bikes
and other accessories on an increasing basis over the next 5
years.

To be able to meet the quantity commitments of this
agreement, Blue had to obtain additional manufacturing
capacity. A real estate firm located an available factory in close
proximity to their current manufacturing facility,
and Blue agreed to purchase the factory and used
machinery from Trails Company on September 1, 2019. Renovations
were necessary to convert the factory for Blue’s manufacturing
use.

The terms of the agreement required Blue to pay Trails
$90,000 when renovations started on January 1, 2020, with the
balance to be paid as renovations were completed. The overall
purchase price for the factory and machinery was $601,000. The
building renovations were contracted to Modes Construction at
$260,000. The payments made, as renovations progressed during 2020,
are shown below. The factory was placed in service on January 1,
2021.
1/1
4/1
10/1
12/31
Trails
Modes
On January 1, 2020, Blue secured a
$771,000 line-of-credit with an 8% interest rate to
finance the purchase cost of the factory and machinery, and the
renovation costs. Blue drew down on the line-of-credit to
meet the payment schedule shown above; this was Blue’s only
outstanding loan during 2020.

Blue will capitalize the maximum allowable interest costs for
this project. Blue’s policy regarding purchases of this nature
is to use the appraisal value of the land for book purposes and
prorate the balance of the purchase price over the remaining items.
The building had originally cost Trails $199,000 and had a net
book value of $119,000, while the machinery originally cost
$159,000 and had a net book value of $60,000 on the date
of sale. The land was recorded on Trails’ books at $50,000. An
appraisal, conducted by independent appraisers at the time of
acquisition, valued the land at $251,000, the building at $333,000,
and the machinery at $111,000.

The company’s chief engineer estimated that the renovated plant
would be used for 20 years, with an estimated salvage
value of $47,000. She estimated that the productive machinery would
have a remaining useful life of 5 years and a salvage
value of $5,400. Blue’s depreciation policy specifies
the 200% declining-balance method for machinery and
straight-line method for the plant. One-half year’s depreciation is
taken in the year the plant is placed in service and one-half year
is allowed when the property is disposed of or
retired. Blue uses a 360-day year for calculating
interest costs.

a. Determine the amounts to be recorded on the books
of Blue as of December 31, 2020, for each of the
following properties acquired from Trails Company. Assume that all
interest is capitalized to the Buildings account.
1.
Land
$enter a dollar amount
2.
Buildings
$enter a dollar amount
3.
Machinery
$enter a dollar amount
b.
Calculate Darby Sporting Goods Inc.'s 2018 depreciation expense,
for book purposes, for each of the properties acquired from Encino
Athletic Equipment Company.