Calculate the amount of accumulated depreciation


Problem 1: Hootie and the Blow Fish, Inc., organized in 2002, has the following transactions related to intangible assets.

1/2/02 Purchased patent (7-year life) $490,000

4/1/02 Goodwill purchased (indefinite life) 360,000

7/1/02 10-year franchise; expiration date 7/1/2012 420,000

9/1/02 Research and development costs 185,000

Instructions:

Prepare the necessary entries to record these intangibles. All costs incurred were for cash. Make the entries as of December 31, 2002, recording any necessary amortization and reflecting all balances accurately as of that date.

Problem 2: In recent years, Letterman Company purchased three machines. Because of heavy turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each machine, and various methods were selected. Information concerning the machines is summarized below.

Machine        Acquired         Cost         Salvage Value        Useful Life       Depreciation

                                                                                      In Years           Method

1                   1/1/99          96,000          6k                            10             Straight-line

2                   1/1/00          60,000         10k                            8            Declining Balance

3                  11/1/02          66,000          6k                             6            Units of activity

For the declining-balance method, the company uses the double-declining rate. For the units of-activity method, total machine hours are expected to be 24,000. Actual hours of use in the first 3 years were: 2002, 1,000; 2003, 4,500; and 2004, 5,000.

Instructions

(a) Compute the amount of accumulated depreciation on each machine at December 31, 2002.

(b) If machine 2 had been purchased on April 1 instead of January 1, what would be the depreciation expense for this machine in (1) 2000 and (2) 2001?

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Accounting Basics: Calculate the amount of accumulated depreciation
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