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

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

of alternative methods on the amount of depreciation expense each year. On the

basis of the data presented to the manager, the double-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 the estimated four

years of use, the accumulated depreciation at the end of each year, and the

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

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

headings are suggested for each schedule:

Year Depreciation Expense Accumulated Depreciation, End of Year Book value, End of Year

 

2. Illustrate the effects on the accounts and financial statements of the sale.

3. Illustrate the effects on the accounts and financial statements of the sale,

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

 

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

Company during the current year ended December 31 are as follows:

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

was impaired.

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

on June 30 in obtaining a patent with an estimated economic life of 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, or impairment for the

current year for each of the foregoing items.

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

Answers

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