Exercise 1

Muggsy Bogues Company purchased equipment for $212,000 on October 1, 2014. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is 40,000 units and estimated working hours are 20,000. During 2014, Bogues uses the equipment for 525 hours and the equipment produces 1,000 units.

Compute depreciation expense under each of the following methods. Bogues is on a calendar-year basis ending December 31.

(a) Straight-line method for 2014.

(b) Activity method (units of output) for 2014.

(c) Activity method (working hours) for 2014.

(d) Sum-of-the-years'-digits method for 2016.

(e) Double-declining-balance method for 2015 .

Exercise 2

Presented below is information related to LeBron James Manufacturing Corporation

Asset    Cost                 Estimated Salvage           Estimated Life (in years)

A         $ 40,500          $ 5,500                                     10

B          33,600             4,800                                       9

C          36,000             3,600                                       9

D         19,000             1,500                                       7

E          23,500             2,500                                       6

Compute the rate of depreciation per year to be applied to the plant assets under the composite method.

Prepare the adjusting entry necessary at the end of the year to record depreciation for the year.

Prepare the entry to record the sale of asset D for cash of $4,800. It was used for 6 years, and depreciation was entered under the composite method.

Exercise 3

Forda Lumber Company owns a 7,000-acre tract of timber purchased in 2007 at a cost of $1,300 per acre. At the time of purchase, the land was estimated to have a value of $300 per acre without the timber. Forda Lumber Company has not logged this tract since it was purchased. In 2014, Forda had the timber cruised. The cruise (appraiser) estimated that each acre contained 8,000 board feet of timber. In 2014, Forda built 10 miles of roads at a cost of $7,840 per mile. After the roads were completed, Forda logged and sold 3,500 trees containing 850,000 board feet.

Determine the cost of timber sold related to depletion for 2014.

Cost of timber sold  $

If Forda depreciates the logging roads on the basis of timber cut, determine the depreciation expense for 2014.

Depreciation expense $

If Forda plants five seedlings at a cost of $4 per seedling for each tree cut, how should Forda treat the reforestation?

Forda should                    the cost of $            and adjust the depletion the next time the timber is harvested

Exercise 4

Presented below is a list of items that could be included in the intangible assets section of the balance sheet.

Indicate which items on the list below would generally be reported as intangible assets in the balance sheet.

Reported as

1. Investment in a subsidiary company.

2. Timberland.

3. Cost of engineering activity required to advance the design of a product to the manufacturing stage.

4. Lease prepayment (6 months' rent paid in advance).

5. Cost of equipment obtained.

6. Cost of searching for applications of new research findings.

7. Costs incurred in the formation of a corporation.

8. Operating losses incurred in the start-up of a business.

9. Training costs incurred in start-up of new operation.

10. Purchase cost of a franchise.

11. Goodwill generated internally.

12. Cost of testing in search for product alternatives.

13. Goodwill acquired in the purchase of a business.

14. Cost of developing a patent.

15. Cost of purchasing a patent from an inventor.

16. Legal costs incurred in securing a patent.

17. Unrecovered costs of a successful legal suit to protect the patent.

18. Cost of conceptual formulation of possible product alternatives.

19. Cost of purchasing a copyright.

20. Research and development costs.

21. Long-term receivables.

22. Cost of developing a trademark.

23. Cost of purchasing a trademark.

Exercise 5

Rolanda Marshall Company, organized in 2013, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2014.

1/2/14  Purchased patent (8-year life)                                             $350,000

4/1/14  Purchase goodwill (indefinite life)                                         360,000

7/1/14  Purchased franchise with 10-year life; expiration date 7/1/24 450,000

8/1/14  Payment of copyright (5-year life)                                        156,000

9/1/14  Research and development costs                                         215,000

                                                                                                   $1,531,000

Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles.

Make the entries as of December 31, 2014, recording any necessary amortization.

Reflect all balances accurately as of December 31, 2014. (Use straight-line amortization.)

Exercise 6

Horace Greeley Corporation was organized in 2013 and began operations at the beginning of 2014. The company is involved in interior design consulting services. The following costs were incurred prior to the start of operations.

Attorney's fees in connection with organization of the company             $15,000

Purchase of drafting and design equipment                                          10,000

Costs of meetings of incorporators to discuss organizational activities     7,000

State filing fees to incorporate                                                             1,000

                                                                                                        $33,000

Compute the total amount of organization costs incurred by Greeley.

Total organization costs  $

Prepare the journal entry to record organization costs for 2014.