E 11-1

On January 1, 2013, the Excel Delivery Company purchased a delivery van for $33,000. At the end of its five-year service life,
it is estimated that the van will be worth $3,000. During the five-year period, the company expects to drive the van 100,000 miles.


  Calculate annual depreciation for the five-year life of the van using each of the following methods. Round all computations to the nearest dollar.                    

1 Straight line.
2 Sum-of-the-years’ digits.
3 Double-declining balance.
4 Units of production using miles driven as a measure of output, and the following actual mileage:

Year        Miles       
2013        22,000      
2014        24,000      
2015        15,000      
2016        20,000      
2017        21,000      

E 11-6

On April 29, 2013, Quality Appliances purchased equipment for $260,000.
The estimated service life of the equipment is six years and the estimated residual value is $20,000. Quality’s fiscal year ends on December 31.


Calculate depreciation for 2013 and 2014 using each of the three methods listed.            

Quality calculates partial year depreciation based on the number of months the asset is in service. Round all computations to the nearest dollar.

1 Straight-line.
2 Sum-of-the-years’ digits.
3 Double-declining balance.

E 11-11

On April 17, 2013, the Loadstone Mining Company purchased the rights to a coal mine.
The purchase price plus additional costs necessary to prepare the mine for extraction of the coal totaled $4,500,000.
The company expects to extract 900,000 tons of coal during a four-year period. During 2013, 240,000 tons were extracted and sold immediately.


1 Calculate depletion for 2013.
2 Discuss the accounting treatment of the depletion calculated in requirement 1.

E 11-14

Janes Company provided the following information on intangible assets:

A patent was purchased from the Lou Company for $700,000 on January 1, 2011.
Janes estimated the remaining useful life of the patent to be 10 years.
The patent was carried on Lou’s accounting records at a net book value of $350,000 when Lou sold it to Janes.

During 2013, 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.

    Janes incurred research and development costs in 2013 as follows:                        

Materials and supplies   $140,000.00               
          Personnel    $180,000.00               
        Indirect Costs   $60,000.00                
      Total    $380,000.00               

Effective January 1, 2013, based on new events that have occurred,
Janes estimates that the remaining life of the patent purchased from Lou is only five more years.

Required 1. Prepare the entries necessary for years 2011 through 2013 to reflect the above information.
2. Prepare a schedule showing the intangible asset section of Jane’s December 31, 2013 balance sheet.

E 11-20

For financial reporting, Clinton Poultry Farms has used the declining-balance method of depreciation
for conveyor equipment acquired at the beginning of 2010 for $2,560,000.
Its useful life was estimated to be six years, with a $160,000 residual value. At the beginning of 2013,
Clinton decides to change to the straight-line method. The effect of this change on depreciation for each year is as follows:

 Year    Straight Line   Declining Balance   Difference  
2010    $400,000   $853,000   $453,000   
2011    $400,000   $569,000   $169,000   
2012    $400,000   $379,000   ($21,000)  

Total   $1,200,000 $1,801,000 $601,000   

1 Briefly describe the way Clinton should report this accounting change in the 2012–2013 comparative financial statements.
2 Prepare any 2013 journal entry related to the change.

BE 11-10

Collison and Ryder Company (C&R) has been experience declining market conditions for its sportswear division.
Management decided to test the assets of the division for possible impairment. The test revealed the following:
book value of division’s assets, $26.5 million; fair value of division’s assets, $21 million; sum of estimated
future cash flows generated from the division’s assets, $28 million. What amount of impairment loss
should C& R recognize?

BE 11-16

Demmert Manufacturing incurred the following expenditures during the current fiscal year: annual maintenance
on its machinery, $5,400; remodeling of the offices, $22,000; rearrangement of the shipping and receiving area
resulting in an increase in productivity, $35,000: addition of a security system to the manufacturing facility,
$25,000. How should Demmert account for each of these expenditures?

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