Brief Exercise 1

Fernandez Corporation purchased a truck at the beginning of 2014 for $50,000. The truck is estimated to have a salvage value of $2,000 and a useful life of 160,000 miles. It was driven 23,000 miles in 2014 and 31,000 miles in 2015.

Compute depreciation expense for 2014 and 2015.

Brief Exercise 2

Lockard Company purchased machinery on January 1, 2014, for $80,000. The machinery is estimated to have a salvage value of $8,000 after a useful life of 8 years.

Compute 2014 depreciation expense using the double-declining-balance method.

Compute 2014 depreciation expense using the double-declining-balance method, assuming the machinery was purchased on October 1, 2014.

Depreciation expense

Brief Exercise 3

Jurassic Company owns machinery that cost $900,000 and has accumulated depreciation of $380,000. The expected future net cash flows from the use of the asset are expected to be $500,000. The fair value of the machinery is $400,000.

Prepare the journal entry, if any, to record the impairment loss.

Brief Exercise 4

Everly Corporation acquires a coal mine at a cost of $400,000. Intangible development costs total $100,000. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is $80,000), after which it can be sold for $160,000. Everly estimates that 4,000 tons of coal can be extracted.

If 700 tons are extracted the first year, prepare the journal entry to record depletion.

Brief Exercise 5

Francis Corporation purchased an asset at a cost of $50,000 on March 1, 2014. The asset has a useful life of 8 years and a salvage value of $4,000. For tax purposes, the MACRS class life is 5 years.

Compute tax depreciation for each year 2014-2019.

Brief Exercise 6

Celine Dion Corporation purchases a patent from Salmon Company on January 1, 2014, for $54,000. The patent has a remaining legal life of 16 years. Celine Dion feels the patent will be useful for 10 years.

Prepare Celine Dion's journal entries to record the purchase of the patent and 2014 amortization.

Brief Exercise 7

Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $120,000 on April 1, 2014. The franchise grants Gershwin the right to sell certain products and services for a period of 8 years.

Prepare Gershwin's April 1 journal entry and December 31 adjusting entry.

Brief Exercise 8

Roley Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts.

(a) On July 1, (1) Roley purchased $60,000 of inventory, terms 2/10, n/30, FOB shipping point. (2) Roley paid freight costs of $1,200.
(b) On July 3, Roley returned damaged goods and received credit of $6,000.
(c) On July 10, Roley paid for the goods.

Prepare all necessary journal entries for Roley.

Brief Exercise 9

Takemoto Corporation borrowed $60,000 on November 1, 2014, by signing a $61,350, 3-month, zero-interest-bearing note. Prepare Takemoto's November 1, 2014, entry; the December 31, 2014, annual adjusting entry; and the February 1, 2015, entry.

Brief Exercise 10

Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%.

Compute the issue price of the bonds.

Brief Exercise 11

On January 1, 2014, Irwin Animation sold a truck to Peete Finance for $33,000 and immediately leased it back. The truck was carried on Irwin's books at $28,000. The term of the lease is 5 years, and title transfers to Irwin at lease-end. The lease requires 5 equal rental payments of $8,705 at the end of each year. The appropriate rate of interest is 10%, and the truck has a useful life of 5 years with no salvage value.

Prepare Irwin's 2014 journal entries. To record amortization of profit on sale use Depreciation Expense account and not Sales Revenue account.

Multiple Choice Question

Grover Corporation purchased a truck at the beginning of 2014 for $93,600. The truck is estimated to have a salvage value of $3,600 and a useful life of 120,000 miles. It was driven 21,000 miles in 2014 and 29,000 miles in 2015. What is the depreciation expense for 2015?

$23,490
$21,750
$37,500
$6,000