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ACC422 WileyPlus Week 4

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E11-4 (Depreciation Computations—Five Methods) Wenner Furnace Corp. purchased machinery for $279,000 on May 1, 2012. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2011 Wenner Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units.

Instructions
From the information given, compute the depreciation charge for 2013 under each of the following
methods. (Round to the nearest dollar.)

(a) Straight-line.
(b) Units-of-output.
(c) Working hours.
(d) Sum-of-the-years’-digits.
(e) Double-declining-balance.

P11-6 (Depletion, Timber, and Extraordinary Loss) Conan O’Brien Logging and Lumber Company owns 3,000 acres of timberland on the north side of Mount Leno, which was purchased in 2000 at a cost of $550 per acre. In 2012, O’Brien began selectively logging this timber tract. In May of 2012, Mount Leno erupted, burying the timberland of O’Brien under a foot of ash. All of the timber on the O’Brien tract was downed. In addition, the logging roads, built at a cost of $150,000
were destroyed, as well as the logging equipment, with a net book value of $300,000

At the time of the eruption, O’Brien had logged 20% of the estimated
500,000 board feet of timber. Prior to the eruiption, O'Brien estimated the land to have a value of
$200 per acre after the timber was harvested. O’Brien includes the logging roads in the depletion base.

O’Brien estimates it will take 3 years to salvage the downed timber at a cost of $700,000
The timber can be sold for pulp wood at an estimated price of $3.00 per board foot.
T he value of the land is unknown, but must be considered nominal due to future uncertainties.

Instructions
(a) Determine the depletion cost per board foot for the timber harvested prior to the eruption of Mount
Leno.
(b) Prepare the journal entry to record the depletion prior to the eruption.
(c) If this tract represents approximately half of the timber holdings of O’Brien, determine the amount
of the extraordinary loss due to the eruption of Mount Leno for the year ended December 31, 2012.

E12-16 (Accounting for R & D Costs) Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2011, the company expends 325,000 on a research project, but by the end of 2011 it is impossible to determine whether any benefit will be derived from it.

a) The project is completed in 2012, and a successful patent is obtained. The R&D costs to complete the project are $130,000. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2012 total $24,000. The patent has an expected useful life of 5
years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2012.

b) In 2013, the company successfully defends the patent in extended litigation at a cost of
$47,200 thereby extending the patent life to December 31, 2020. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2013.

P12-1 (Correct Intangible Asset Account) Reichenbach Co., organized in 2011, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2012 and 2013.


7/1/128-year franchise; expiration date 6/30/19 $48,000
10/1/12Advance payment on laboratory space (2-year lease) 24,000
12/31/12Net loss for 2011 including state incorporation fee, $1,000, 
and related legal fees of organizing, $5,000 (all fees 
incurred in 2011) 16,000
1/2/13Patent purchased (10-year life) 84,000
3/1/13Cost of developing a secret formula (indefinite life) 75,000
4/1/13Goodwill purchased (indefinite life) 278,400
6/1/13Legal fee for successful defense of patent purchased above 12,650
9/1/13Research and development costs 160,000

Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. (List multiple deb/credit entries from largest to smaller amount, e.g. 10,5, 2)

• Exercise E11-4
• Problem P11-6
• Exercise E12-16
• Problem P12-1

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