Question

For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on assets, liabilities, and net income by entering for each account affected the account name and amount and indicating whether it is an addition (+) or a subtraction (-). Transaction a has been done as an illustration. Net income is not affected by every transaction. In some cases, only one column may be affected because all of the specific accounts affected by the transaction are included in that category. a. Recorded $200 of depreciation expense. b. Sold land that had originally cost $13,300 for $11,500 in cash. c. Recorded a $68,600 payment for the cost of developing and registering a patent d. Recognized periodic amortization for the patent (in part c) using the maximum statutory useful life. e. Capitalized $3,400 of cash expenditures made to extend the useful life of production equipment. f. Expensed $1,900 of cash expenditures incurred for routine maintenance of production equipment. g. Sold a used machine for $9,200 in cash. The machine originally cost $35,000 and had been depreciated for the first two years of its five-year useful life using the double-declining-balance method. (Hint: You must compute the balance of the accumulated depreciation account before you can record the sale.) h. Purchased a business for $337,000 in cash. The fair values of the net assets acquired were as follows: Land, $37,800; Buildings, $190,000; Equipment, $94,000, and Long-Term Debt, $65,400. Transaction Assets Liabilities Net Income a. Accumulated depreciation -200 Depreciation expenses -200

Answer 1

Answer with working notes is given below

Liabilities Net Income Deprecation expense -$200 Loss on sale of Land -$1,800 Amortisation expense - $3,430 ($68,600/5 years) Transaction Assets Accumulated Depreciation - $200 Cash +$11,500 Land - $13,300 Cash - $68,600 Patent +$68,600 Accumulated amortisation -$3,430 Cash - $3,400 Equipment +$3,400 Cash - $1,900 Machine - $35,000 Accumulated Depreciation + $22,400 Cash +$9,200 Cash - $337,000 Land +$37,800 Buildings +$190,000 Equipment +$ 94,000 Goodwill +$80,600 Maintenance expenses - $1,900 Loss on sale of Machine -$3,400 Long Term Debt +$65,400 note: Maximum statutory life of patent is 20 years

Working notes: Book Depreciation Netbook value (40%) value Year 1 $35,000 $14,000 $21,000 Year 2 $21,000 $8,400 $12,600 Accumulated Depreciation $22,400 Cost of Asset Accumulated depreciation Net Book value sale value Loss on sale of machine $35,000 $22,400 $12,600 $9,200 $3,400 Depreciation rate DDB rate 20% 40% (20% X 2) 337000 Cash paid Less: Cost of Net assets acquired Land Buildings Equipment Total assets Less: Long term liabilities Good will $37,800 $190,000 $94,000 $321,800 $65,400 $256,400 $80,600