Exercises and Problems Week 2



Exercises and Problems –W2 E9-1 The following expenditures relating to plant assets were made by Spaulding Company during the first 2 months of 2011. 1. Paid $5,000 of accrued taxes at time plant site was acquired. 2. Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit. 3. Paid $850 sales taxes on new delivery truck. 4. Paid $17,500 for parking lots and driveways on new plant site. 5. Paid $250 to have company name and advertising slogan painted on new delivery truck. 6.

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Paid $8,000 for installation of new factory machinery. 7. Paid $900 for one-year accident insurance policy on new delivery truck. 8. Paid $75 motor vehicle license fee on the new truck. Instructions (a) Explain the application of the cost principle in determining the acquisition cost of plant assets. I need to add up the total cost that it takes to make the business operational to include taxes, insurance, and other fees that may apply in order to run. Of the list above, all are necessary to add together to find the acquisition costs of the plant assets which is $32,775. b) List the numbers of the foregoing transactions, and opposite each indicate the account title to which each expenditure that should be debited. 1. Paid $5,000 of accrued taxes at time plant site was acquired. Land 2. Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit. Equipment 3. Paid $850 sales taxes on new delivery truck. Equipment (added to the total cost of the delivery truck) 4. Paid $17,500 for parking lots and driveways on new plant site. Land improvements 5. Paid $250 to have company name and advertising slogan painted on new delivery truck.

Equipment (added to the total cost of the delivery truck) 6. Paid $8,000 for installation of new factory machinery. Equipment 7. Paid $900 for one-year accident insurance policy on new delivery truck. Prepaid Asset 8. Paid $75 motor vehicle license fee on the new truck. Expense rv;’lvl;’x E9-7 Brainiac Company purchased a delivery truck for $30,000 on January 1, 2011. The truck has an expected salvage value of $2,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2011 and 12,000 in 2012. Instructions (a) Compute depreciation expense for 2011 and 2012 using: 1) The straight-line method $30,000-$2,000=$28,000 $28,000/8=$3,500Annual Depreciable Depreciation Depreciation Accumulated Book Year Costs X Rate = Expense depreciation value 2011$28,000%12. 5$3,500$3,500$26,500 2012$28,000%12. 5$3,500$7,000$23,000 (2) The units-of-activity method $28,000/100,000=$0. 28 2011__$0. 28 x 15,000mi = $4,200 2012__$0. 28 x 12,000mi = $3,360Annual Units of Depreciation Depreciation Accumulated Book Year activity X Cost = Expense epreciation value 2011 15,000$0. 28$4,200$4,200$25,800 2012 12,000$0. 28$3,360$7,560$22,440 (3) The double-declining balance method 2011__%25*$30,000=$7,500 2012__%25*$22,500=$5,625Annual Book Value Depreciation Depreciation Accumulated Book Year beginning year X Rate = Expense depreciation value 2011 $30,000%25$7,500$7,500$22,500 2012 $22,500%25$5,625$5,625$16,875 (b) Assume that Brainiac uses the straight-line method. (1) Prepare the journal entry to record 2011 depreciation. Cost of delivery truck$30,000

Accumulated depreciation$3,500 Book value as of 12/31/2011$26,000 (2) Show how the truck would be reported in the December 31, 2011, balance sheet. December 31, 2011depreciation expense$3,500 Accumulated depreciation—delivery$3,500 Truck (to record the depreciation expense for the year 2011) ______________________________________________________________________________ E9-12 The following are selected 2011 transactions of Franco Corporation. Jan. 1-Purchased a small company and recorded goodwill of $150,000. Its useful life is indefinite.

May 1-Purchased for $90,000 a patent with an estimated useful life of 5 years and a legal life of 20 years. Instructions Prepare necessary adjusting entries at December 31 to record amortization required by the events above. Goodwill and other intangible assets Goodwill$150,000 Trademarks and other intangible assets, net + $90,000_ Net goodwill and other intangible assets $240,000 ______ Dec. 31 Amortization Expense—Patent $18,000 Patent $18,000 (To record patent amortization) ______ Patent ($900,000 cost less $18,000 amortization) $ 72,000 ————————————————-

P9-7B The intangible assets section of Time Company at December 31, 2011, is presented below. Patent ($100,000 cost less $10,000 amortization) $90,000 Copyright ($60,000 cost less $24,000 amortization) $36,000 Total $126,000 The patent was acquired in January 2011 and has a useful life of 10 years. The copyright was acquired in January 2008 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2012. Jan. 2 Paid $45,000 legal costs to successfully defend the patent against infringement by another company. Jan. June Developed a new product, incurring $230,000 in research and development costs. A patent was granted for the product on July 1. Its useful life is equal to its legal life. Sept. 1-Paid $125,000 to an X-games star to appear in commercials advertising the company’s products. The commercials will air in September and October. Oct. 1 Acquired a copyright for $200,000. The copyright has a useful life of 50 years. Instructions (a) Prepare journal entries to record the transactions above. Jan. 2 Legal costs defending infringement$45,000 Jan. -Jun. Research/development costs of new product $230,000 Sep. Commercial advertisement w/X-game star $125,000 Oct. 1Acquired copyright + $200,000__ Total costs $600,000 (b) Prepare journal entries to record the 2012 amortization expense for intangible assets. Patent ($100,000 cost less $10,000 amortization) $80,000 Copyright ($60,000 cost less $24,000 amortization) $30,000 Legal costs defending infringement $45,000 Acquired copyright ($200,000 cost less $4,000 amortization) + $200,000_ Total $355,000 The acquired copyright is only 3 months old so I didn’t less the $4,000 c) Prepare the intangible assets section of the balance sheet at December 31, 2012. 2011 Patent $80,000 2008 Copyright $30,000 2012Legal costs defending infringement $45,000 2012 Acquired copyright + $200,000_ Net Intangible Assets $355,000 For December 31, 2012 (d) Prepare the note to the financials on Time’s intangibles as of December 31, 2012. 2011 Patent $80,000 Less amortization 2008 Copyright $30,000 Less amortization 2012Legal costs defending infringement $45,000 2012 Acquired copyright + $200,000_ Net Intangible Assets $355,000 For December 31, 2012


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