Problem 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
Problem 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.