Accounting for Operating Assets

Concept: At acquisition, operating assets are capitalized at their historical cost. As the service potential of an operating asset declines, the cost of the asset is allocated as an expense among the accounting periods in which the asset is used and benefits are received.

Information: The Carroll Company manufactures a line of cranes, shovels, and hoists, all of which are electronically controlled. During 2009, the following transactions occurred:

a. On January 2, 2009, Carroll purchased a building by signing a note payable for $702,900. The building is expected to have a useful life of 30 years and a residual value of $3,900.

b. On January 3, Carroll purchased a delivery truck for $34,650 cash. The delivery truck is expected to have a useful life of five years and a $5,000 residual value.

c. Immediately after the acquisition, Carroll spent $5,350 on a new engine for the truck. After installing the engine, Carroll estimated that this expenditure increased the useful life of the truck to eight years. The residual value is still expected to be $5,000.

d. In order to assure a coal supply for its heating plant, Carroll acquired a small operat- ing coal mine for $1,980,000. Carroll estimated that the recoverable coal reserves at acquisition were 495,000 tons. Carroll's mine produced 40,000 tons of coal during 2009.

e. Carroll owns a patent that it purchased in 2008 for $100,000. The patent has 12 years remaining on its legal life but Carroll estimates its economic life to be 10 years. Carroll uses the straight-line amortization method.

Required:

1. Record the acquisition of the building and the delivery truck.

2. Compute and record a full year's depreciation expense for 2009 on the building (use the straight-line depreciation method) and on the truck (use the double-declining- balance depreciation method).

3. Compute and record 2009 depletion for the coal mine.

4. Compute and record the amortization expense on the patent for 2009 on a straightline basis.