Question 1: On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process.The equipment has an estimated life of eight years and an estimated residual value of $30,625. The expenditures made to acquire the asset were as follows
Purchase price $154,000
Freight charges 2,000
Installation charges 4,000
Jackson’ policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment’ life and then switch to straight line hallway through the equipment’s life.
Required
1. Depreciation for each year of the asset’s eight year life
2. Discuss the accounting treatment of the depreciation on the equipment
Question 2:
Janes Corporation provided the following information on intangible assets:
a. A patent was purchased from the Lou Company for $700,000 on January 1, 2009. Janes estimated the remaining useful life of the patent to be years. The patent was carried on Lou’s accounting records as a net book value of $350,000 when Lou sold it to Janes.
b. During 2011, a franchise was purchased from the Rink Company for $500,000. The contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase.
c. Janes incurred research and development costs in 2011 as follows:
Materials and supplied $140,000
Personnel $180,000
Indirect costs $60,000
Total $380,000
d. Effective January 1, 2011, based on new events that have occurred. Janes estimates that the remaining life of the patent purchased from Lou is only five years.
Required:
1. Prepare the entries necessary in 2009 and 2011 to reflect the above information
2. Prepare a schedule showing the intangible asset section of Janes’ December 31, 2011, balance.