Question

Crow Co. purchased some of the machinery of Hare Inc., a bankrupt competitor, at a liquidation sale for a total cost of $16,000. Crow's cost of moving and installing the machinery totaled $1,000. The following data are available: Item Punch press Lathe Welder Hare's Net Book Value on the Date of Sale $ 10,530 8,740 2,160 List Price of Same Item If New $ 18,000 8,000 4,000 Appraiser's Estimate of Fair Value $ 15,000 5,000 3,040 Required: a. Calculate the amount that should be recorded by Crow Co. as the cost of each piece of equipment. (Do not round intermediate calculations.) Purchase Price Allocation Punch press Lathe Welder Total b. Which of the following alternatives should be used as the depreciable life for Crow Co.'s depreciation calculation? The remaining useful life to Hare Inc. The life of a new machine. The useful life of the asset to Crow Co.

Answer 1

Purchase price of machinery = 16,000 + 1,000 = 17,000

	Appraiser's Estimate of Fair Value
Punch press	15,000
Lathe	5,000
Welder	3,040
Total	23,040

Answer:

	Purchase price Allocation	Calculation
Punch press	11,068	(15,000 / 23,040) * 17,000
Lathe	3,689	(5,000 / 23,040) * 17,000
Welder	2,243	(3,040 / 23,040) * 17,000
Total	17,000

b.

Option (c) The alternative to be used as depreciable life for depreciation calculation is the useful life of the asset to Crow Co.