Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
173. Assume that Alabama Company purchased factory equipment on January 1, 2015, for $75,000. The equipment has
an estimated life of five years and an estimated residual value of $6,000. Alabama’s accountant is considering
whether to use the straight-line or the units-of-production method to depreciate the asset. Because the company is
beginning a new production process, the equipment will be used to produce 5,000 units in 2015, but production
subsequent to 2015 will increase by 5,000 units each year.
REQUIRED:
Calculate the depreciation expense, accumulated depreciation, and book value of the equipment under both methods
for each of the five years of its life. Would the units-of production method yield reasonable results in this situation?
Explain.
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
174. Surplus Warehouse purchased a forklift on January 1, 2015, for $12,000. The forklift is expected to last for five
years and have a residual value of $1,200. Surplus Warehouse uses the double-declining-balance method for
depreciation.
REQUIRED:
1. Calculate the depreciation expense, accumulated depreciation, and book value for each year of the forklift’s life.
2. Prepare the journal entry to record depreciation expense for 2015.
3. What factors may have influenced Surplus Warehouse to use the double-declining-balance method?
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
175. Assume that Banker Company purchased a new machine on January 1, 2014, for $96,000. The machine has an
estimated useful life of nine years and a residual value of $6,000. Banker has chosen to use the straight-line method
of depreciation. On January 1, 2016, Banker discovered that the machine would not be useful beyond December 31,
2019, and estimated its value at that time to be $4,000.
REQUIRED:
1. Calculate the depreciation expense, accumulated depreciation, and book value of the asset for each year 2014 to
2019.
2. Was the depreciation recorded in 2014 and 2015 wrong? If so, why was it not corrected?
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
176. A company purchased an asset on January 1, 2014, for $10,000. The asset was expected to have a ten-year life
and a $1,000 salvage value. The company uses the straight-line method of depreciation. On January 1, 2016, the
company made a major repair to the asset of $5,000, extending its life. The asset is expected to last ten years
from January 1, 2016.
Calculate the amount of depreciation for 2016.
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
177. Assume that Rocket Company purchased an asset on January 1, 2014, for $62,400. The asset had an estimated life
of eight years and an estimated residual value of $8,000. The company used the straight-line method to depreciate
the asset. On July 1, 2016, the asset was sold for $52,000.
REQUIRED:
1. Make the journal entry to record depreciation for 2016. Record all transactions necessary for the sale of the
asset.
2. How should the gain or loss on the sale of the asset be presented on the income statement?
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
178. Assume that Halpern Company purchased an asset on January 1, 2014, for $122,800. The asset had an estimated
life of six years and an estimated residual value of $2,200. The company used the straight-line method to depreciate
the asset. Assume that Halpern Company sold the asset on July 1, 2015, and received $96,000 cash and a note for
an additional $22,000.
REQUIRED:
1. Make the journal entry to record depreciation for 2015. Record all transactions necessary for the sale of the asset.
2. How should the gain or loss on the sale of the asset be presented on the income statement?
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
179. Below are several accounts and balances from the 2015 financial statements for Torrent, Inc. Prepare the intangible
asset section of the company’s balance sheet, as well as a partial income statement in the space provided below
using the accounts provided.
Amortization expense
$ 32,000
Amortization since inception
89,000
Loss on sale of copyright
12,000
Copyright
120,000
Patents
60,000
Land
80,000
Goodwill
140,000
Research and development costs
160,000
BALANCE SHEET INCOME STATEMENT
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
180. Given below are costs incurred by Bunker Company during 2014 and 2015. Bunker follows the policy of
decreasing the intangible asset account directly as amortized.
Research was conducted to discover a new product and costs of $200,000 in 2014 and $80,000 in 2015 were
incurred. After several months, a product was created and a patent secured for a cost of $150,000, effective as of
July 1, 2015. The company expects to have increased revenues of $500,000 over the next several years. The patent
is expected to be useful for the next 10 years.
A. Prepare a partial income statement for the year ended December 31, 2015.
B. How should the $80,000 cost incurred in 2015 be reported on the financial statements?
181. Wang Fitness Co. purchased a patent at the beginning of 2015 for $120,000. Economic benefits were expected for
only 12 years, but the patent’s legal life is 17 years. Also during 2015, the company incurred research and
development costs of $50,000.
A. Determine the following amounts:
1. Research and development expense for 2015
2. Patent amortization expense for 2015
B. Prepare the intangible assets section of the balance sheet at December 31, 2015.
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
182. Glitch Company incurred the following costs during 2014 and 2015:
a. Research and development costing $40,000 was conducted on a new product to sell in future years. A product
was successfully developed, and a patent for it was granted during 2014. Glitch is unsure of the period benefited by
the research, but believes the product will result in increased sales over the next five years.
b. Legal costs and application fees of $25,000 for the 20-year patent were incurred on January 1, 2014.
c. A patent infringement suit was successfully defended at a cost of $24,000. Assume that all costs were incurred
on January 1, 2015.
REQUIRED:
Determine how the costs in (a) and (b) should be presented on Glitch’s financial statements as of December 31,
2014. Also determine the amount of amortization of intangible assets that Glitch should record in 2014 and 2015.
183. Several years ago, Laurel Company purchased a patent and has since been amortizing it on a straight-line basis
over its estimated useful life. The company’s comparative balance sheets contain the following items:
(In thousands)
December 31, 2015
December 31, 2014
Patent, less accumulated amortization of
$70,000 (2015) and $52,500 (2014)
$280,000
$297,500
A. How much amortization expense was recorded during 2015?
B. How is the amortization expense reported on the company’s statement of cash flows?
C. How much was the original cost of the patent?
D. How many years has the patent been amortized?
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
184. Racer Company acquired patent rights on January 1, 2013 for $1,080,000. The patent has a useful life equal to its
legal life of 15 years. On January 2, 2016, Racer successfully defended the patent in a lawsuit at a cost of $78,000.
Required:
(1) Determine the patent amortization expense for the current year ended December 31, 2016.
(2) Journalize the adjusting entry to recognize the amortization.
185. For each of the following intangible assets, indicate the amount of amortization expense that should be recorded for
the year 2014 and the amount of accumulated amortization on the balance sheet as of December 31, 2014.
Trademark
Patent
Copyright
Cost
$66,000
$75,000
$96,000
Date of Purchase
1/1/07
1/1/09
1/1/12
Useful life
Indefinite
10 years
20 years
Legal life
Undefined
20 years
50 years
Method
Straight-line
Straight-line
Straight-line
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
186. Fill in the table shown below indicating the period of time over which each intangible asset should be amortized,
and indicate the amount of amortization expense that should be reported for 2013.
Goodwill
Trademark
Cost
$80,000
$55,000
Date of purchase
June 30, 2013
January 1, 2013
Legal life
Forever
20 years
Useful life
60 years
10 years
2013 Amortization expense
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
Hu Corporation
Use the following Assets section of Hu Corporation’s balance sheets for the years ended December 31, 2015 and
2014 to answer the questions that follow.
HU CORPORATION
Assets Section of Consolidated Balance Sheets (in millions) at
December 31,
2015 2014
ASSETS
Current Assets
Cash and equivalents
$ 719
$2,610
Short-term investments
0
886
Receivables, less allowances of
6,054
464
$1,889 and $97
Inventories
1,791
0
Prepaid expenses and other current assets
1,710
711
Total Current Assets
$10,274
$4,671
Noncurrent inventories and film costs
6,853
0
Investments
6,886
3,824
Land and buildings
$ 2,107
$ 440
Cable television equipment
9,966
0
Furniture, fixtures, and equipment
4,329
1,297
Property, plant, and equipment
$16,402
$1,737
Less: Accumulated depreciation
(3,718)
(696)
Property, plant, and equipment (net)
12,684
1,041
Music catalogue, and copyrights
2,927
Cable television and sport franchises
27,109
Brands and trademarks
10,684
Goodwill and other intangibles
128,338
713
Other assets
2,804
578
Total assets
$208,559
$10,827
Hu Corporation recorded depreciation expense of $344 million for 2014.