During the current year, Rothchild, Inc., purchased two assets that are describe
ID: 2415918 • Letter: D
Question
During the current year, Rothchild, Inc., purchased two assets that are described as follows:
Rothchild depreciates heavy equipment by the declining-balance method at 150 percent of the straight-line rate. It amortizes intangible assets by the straight-line method. At the end of two years, because of changes in Rothchild’s core business, it sold the patent to a competitor for $30,000.
a. Compute the amount of depreciation expense on the heavy equipment for each of the first three years of the asset’s life.
b.
Compute the amount of amortization on the patent for each of the two years it was owned by Rothchild.
c-1. Prepare the plant and intangible assets section of Rothchild’s balance sheet at the end of the first and second years.
Calculate the amount of the gain or loss on the patent that would be included in the second year’s income statement.
Heavy Equipment Purchase price, $275,000. Expected to be used for 10 years, with a residual value at the end of that time of $50,000. Expenditures required to recondition the equipment and prepare it for use, $75,000. Patent Purchase price, $75,000. Expected to be used for five years, with no value at the end of that time.Explanation / Answer
Answer is critical but i solved on my knowledge I'm not sure what "at the end of two years" means. Does it mean 2 years from now or 2 years backward (3 years from now)
(to compute the depreciation)
Dr. Amortization Expense $30,000 ($75,000/5yrs x 2yrs)
Cr. Accumulated Amortization $30,000
if it's 2 years backward then the expense would be $45,000.
(to record the sale of patent)
Dr. Cash $35,000
Dr. Accumulated Amortization $30,000
Dr. Loss on Sale $10,000
Cr. Patent $75,000
if it's 2 years backward
Dr. Cash $35,000
Dr. Acc Amortization $45,000
Cr. Patent $75,000
Cr. Gain on Sale $5,000
HEAVY EQUIPMENT
straight-line rate = 100/10 = 10%
declining-balance rate = 150% x 10% = 15%
Dep. Exp. Year 1 = 15% x $350,000 = $52,500
Dep. Exp. Year 2 = 15% x (350,000 - 52,500) = $44,625
Dep. Exp. Year 3 = 15% x (350,000 - 52,500 - 44,625) = $37,931
Total Depreciation Expense = $135,056
(to record Dep exp for first 3 years)
Dr. Depreciation Expense $135,056
Cr. Accumulated Depreciation $135,056
Balancesheet first second year
Assets
Plant $297,500 $252,875
Patent $52,000 $39,000
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