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During the current year, Rothchild, Inc., purchased two assetsthat are described as follows:

HeavyEquipment
Purchase price,$275,000.
Expected to beused for 10 years, with a residual value at the end of that time of$50,000.
Expendituresrequired to recondition the equipment and prepare it for use,$75,000.
Patent
Purchase price,$75,000.
Expected to beused for five years, with no value at the end of that time.

Rothchild depreciates heavyequipment by the declining-balance method at 150 percent of thestraight-line rate. It amortizes intangible assets by thestraight-line method. At the end of two years, because of changesin Rothchild’s core business, it sold the patent to a competitorfor $30,000.


a. Compute the amount of depreciation expense onthe heavy equipment for each of the first three years of theasset’s life.

b.

Compute the amount of amortization on the patent for each of thetwo years it was owned by Rothchild.

c-1. Prepare the plant and intangible assetssection of Rothchild’s balance sheet at the end of the first andsecond years.

Calculate the amount of the gain or loss on the patent thatwould be included in the second year’s income statement.

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Patrina Schowalter
Patrina SchowalterLv2
28 Sep 2019

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5. Archie Co. purchased a framing machine for $45,000 on January 1, 2018. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years.


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a. $10,000 and $20,000

b. $10,00 an $25,000

c. $11,250 and $17,500

d. $11,250 and $22,500

6. On September 30, 2018, Bricker Enterprises purchased a machine for $200,000. The estimated service life is 10 years with a $20,000 residual value. Bricker records partial-year depreciation based on the number of months in service.


Depreciation for 2018, using the double-declining balance method, would be:

a. $40,000

b. $10,000

c. $36,000

d. $9,000

7. An asset was acquired on January 1, 2018, for $15,000 with an estimated 4-year life and $1,000 residual value. The company uses straight-line depreciation. Calculate the gain or loss if the asset was sold on December 31, 2020, for $5,000.

a. $500 gain

b. $3,000 loss

c. $1,500 gain

d. $500 loss

8. On January 1, 2018, Tabitha Designs purchased a patent giving it exclusive rights to manufacture a new type of synthetic clothing for $240,000. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchase equipment related to production of the new clothing for $140,000. The equipment has a physical life of 10 years but Tabitha plans to use the equipment only over the patent’s service life and then sell it for an estimated $20,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2021 related to the patent and equipment should be:

a. $40,000

b. $38,000

c. $45,000

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9. Russell Enterprises acquired a franchise from Michael Incorporated for $300,000. The franchise agreement is for a period of six years. Russell uses straight-line to amortize all intangible assets. What would be the reported book value of the franchise two years after the purchase?

a. $300,000

b. $250,000

c. $200,000

d. $100,000

10. Herman Apparel has purchased equipment on January 1, 2015, for $560,000. In 2015-2017, Herman depreciated the asset on a straight-line basis with an estimated useful life of eight years and a $80,000 residual value. In 2018, Herman has started to change its business strategy and now believes that the equipment will be used for only another two years (five years total) but does not believe the residual value has changed. What depreciation would Herman record for the year 2018 on this equipment?

a. $150,000

b. $175,000

c. $124,000

d. $ 96,000

Jolis Company has provided information on the following items:

1. A patent was purchased from Totley Company for $500,000 on January 1, 2015. At that time, Jolis estimated the remaining useful life to be 10 years. The patent was carried on Totley’s books at $20,000 when it sold the patent.
2. On March 2, 2016, a franchise was purchased from Unal Company for $240,000. In addition, 8% of the revenue from the franchise must be paid to Unal. Revenue earned during 2016 was $620,000. Jolis believes that the life of the franchise is indefinite and that the franchise is not impaired at the end of 2016.
3. R&D costs were incurred as follows: (a) materials and equipment, $50,000; (b) personnel, $80,000; and (c) indirect costs, $40,000. The costs were incurred to develop a product that will go on sale in 2017 and will have an expected life of 5 years.
4. A trade name had been purchased for a sugar substitute at the beginning of 2012 for $80,000. In January 2016, it was suspected that the product caused cancer. Its fair value was estimated to be zero and the trade name was abandoned.
5. The company purchased the net assets of Lansing Company on September 1, 2016, for $950,000, and Lansing was liquidated. Lansing had the following book (fair) values: cash, $50,000 ($50,000); inventory, $150,000 ($160,000); property, plant, and equipment, $750,000 ($900,000); accounts payable, $75,000 ($75,000); and notes payable, $175,000 ($175,000). Any goodwill is not impaired at the end of 2016.

Required:

Prepare journal entries for Jolis for 2016. The company uses the straight-line method of amortization computed to the nearest month over the maximum allowable life. Assume that the company pays all costs in cash, unless otherwise indicated


1. New tire retreading equipment, acquired at acost of $140,000 at the beginning

of a fiscal year, has an estimated useful life of four years andan estimated residual value of $10,000. The manager requestedinformation regarding the effect

of alternative methods on the amount of depreciation expenseeach year. On the

basis of the data presented to the manager, thedouble-declining-balance method

was selected.

In the first week of the fourth year, the equipment was sold for$23,300.


Instructions

1. Determine the annual depreciation expense for each of theestimated four

years of use, the accumulated depreciation at the end of eachyear, and the

book value of the equipment at the end of each year by (a) thestraight-line

method and (b) the double-declining-balance method. Thefollowing columnar

headings are suggested for each schedule:

Year DepreciationExpense Accumulated Depreciation, End ofYear Book value, End of Year


2. Illustrate the effects on the accounts and financialstatements of the sale.

3. Illustrate the effects on the accounts and financialstatements of the sale,

assuming a sale price of $15,250 instead of $23,300.


2. Data related to the acquisition of timberrights and intangible assets of Gemini

Company during the current year ended December 31 are asfollows:

a. On December 31, Gemini Company determined that $3,000,000 ofgoodwill

was impaired.

b. Governmental and legal costs of $920,000 were incurred byGemini Company

on June 30 in obtaining a patent with an estimated economic lifeof 8 years.

Amortization is to be for one-half year.

c. Timber rights on a tract of land were purchased for$1,350,000 on March 6.

The stand of timber is estimated at 15,000,000 board feet.During the current

year, 3,300,000 board feet of timber were cut and sold.

Instructions

1. Determine the amount of the amortization, depletion, orimpairment for the

current year for each of the foregoing items.

2. Illustrate the effects on the accounts and financialstatements of the adjustments for each item.

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