Question

Problem 1: A machine cost $900,000 on April 1, 2017. Its estimated salvage value is $90,000 and its expected life is eight years.

Instructions

1. Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used.

1. Straight-line for 2017
2. Double-declining balance for 2018
3. Sum-of-the-years'-digits for 2018

2.         Which method would result in the smallest income amount for 2018?

Problem 2: Answer each of the following questions.

1.    A plant asset purchased for $500,000 has an estimated life of 10 years and a residual value of $25,000. Depreciation for the second year of use, determined by the declining-balance method at twice the straight-line rate is $_____________.

2.    A plant asset purchased for $440,000 at the beginning of the year has an estimated life of 5 years and a residual value of $40,000. Depreciation for the third year, determined by the sum-of-the-years'-digits method is $______________.

3.    A plant asset with a cost of $540,000, estimated life of 5 years, and residual value of $90,000, is depreciated by the straight-line method. This asset is sold for $380,000 at the end of the second year of use. The gain or loss on the disposal (indicate by "G" or "L") is $___________.

Problem 3: A truck was acquired on July 1, 2015, at a cost of $189,000. The truck had a six-year useful life and an estimated salvage value of $21,000. The straight-line method of depreciation was used. On January 1, 2018, the truck was overhauled at a cost of $17,500, which extended the useful life of the truck for an additional two years beyond that originally estimated (salvage value is still estimated at $21,000). In computing depreciation for annual adjustment purposes, expense is calculated for each month the asset is owned.

Instructions

Prepare the appropriate entries for January 1, 2018 and December 31, 2018.

Problem 4: Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $6,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Dolphin’s equipment. Dolphin’s controller estimates that expected future net cash flows on the equipment will be $3,750,000 and that the fair value of the equipment is $3,300,000. Dolphin intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Dolphin uses straight-line depreciation.

Instructions

1. What is the carrying value of the asset?
2. Prepare the journal entry (if any) to record the impairment at December 31, 2017.
3. Prepare any journal entries for the equipment at December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be $3,450,000.
4. Repeat the requirements for (a) and (b), assuming that Dolphin intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018.

The following Chapter 12 section is worth 320 points, each question is worth 5 points.

Problem 1: Remington Corporation purchases a patent from Durler Company on January 1, 2017, for $84,000. The patent has a remaining legal of 16 years. Remington feels the patent will be useful for 10 years. Assume that at January 1, 2019, the carrying amount of the patent on Remington's books is $67,200. In January, Remington spends $20,000 successfully defending a patent suit. Remington still feels the patent will be useful until the end of 2026. Prepare Remington's journal entries to record the amortization for 2017 and 2019.

Problem 2: On September 1, 2018, Vernon Corporation acquired Barlow Enterprises for a cash payment of $820,000. At the time of purchases, Barlow's balance sheet showed assets of $610,000, liabilities of $240,000, and owner's equity of $420,000. The fair value of Barlow's assets is estimated to be $970,000. Compute the amount of goodwill acquired by Vernon.

Problem 3: Weaver Corporation purchased Merando Company 3 years ago and at that time recorded goodwill of $720,000. The Division's net assets, including the goodwill, have a carrying amount of $1,200,000. The fair value of the division is estimated to be $1,100,000 and implied goodwill is $630,000. Prepare Weaver's journal entry, if necessary, to record impairment of the goodwill.

Problem 4: A patent was acquired by Renfro Corporation on January 1, 2014, at a cost of $80,000. The useful life of the patent was estimated to be 10 years. At the beginning of 2017, Renfro spent $14,000 in successfully defending an infringement of the patent. At the beginning of 2018, Renfro purchased a patent for $21,000 that was expected to prolong the life of its original patent for 5 additional years.

Instructions

Calculate the following amounts for Renfro Corporation.

1.    Amortization expense for 2014.
2.    The balance in the Patent account at the beginning of 2017, immediately after the infringement suit.
3.    Amortization expense for 2017.
4.    The balance in the Patent account at the beginning of 2018, after purchase of the additional patent.
5.    Amortization expense for 2018.

Answer 1