W4-T2 Comprehensive Depreciation Computations (Chapter 12)

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W4-T1

Team #:
Exercise:	W4-T2 Comprehensive Depreciation Computations (Chapter 11)
	Schultz Corporation began operations on October 1, 2010.
	The accounting department of Schultz has started the fixed-asset and depreciation
	schedule presented on below. You have been asked to assist in completing this schedule.
	In addition to ascertaining that the data already on the schedule are correct, you have
	obtained the following information from the company's records and personnel.
1)	Depreciation is computed from the first of the month of acquisition to the first of the
	month of disposition.
2)	Land A and Building A were acquired from a predecessor corporation. Schultz paid
	$ 1,050,000	for the land and building together. At the time of acquisition, the land
	had an appraised value of		$ 110,000	and the building had an appraised value of
	$ 990,000	.
3)	Land B was acquired on October 2, 2010, in exchange for				3,000	newly issued shares
	of Schultz common stock. At the date of acquisition, the stock had a par value of
	$5	per share and a fair value of		$40	per share.
	During October 2010, Shultz paid			$25,000	to demolish an existing building
	on the land so it could construct a new building.
4)	Construction of Building B on the newly acquired land began on October 1, 2011. By
	September 30, 2012, Schultz had paid			$320,000	on the estimated total construction
	costs of	$450,000	. It is estimated that the building will be completed and
	occupied by July 2013.
5)	Certain equipment was donated to the corporation by a local university. An independent
	appraisal of the equipment when donated placed the fair market value at					$60,000
	and the salvage value at		$6,000	.
6)	Machinery A's total cost of		$175,900	includes installation expense of			$600
	and normal repairs and maintenance of			$16,900	. Salvage value is estimated at
	$8,000	. Machinery A was sold on February 1, 2012.
7)	On October 1, 2011, Machinery B was acquired with a down payment of					$7,600
	and the remaining payments to be made in 11 annual installments of					$9,000
	each beginning October 1, 2011. The prevailing interest rate was					8%	. The
	following data was abstracted from present-value tables (rounded).
	Present value of $1.00 at 8%			Present value of a ordinary annuity of $1.00 at 8%
	10 years	0.463		10 years	6.71
	11 years	0.429		11 years	7.139
	15 years	0.315		15 years	8.559
	Schultz Corporation
	Fixed Asset Depreciation Schedule
	For Fiscal Years Ended September 30, 2011 and September 30, 2012
							Depreciation Expense Year Ended September 30
	Assets	Acquisition Date	Cost	Salvage	Depreciation Method	Estimated Life in Years	2011	2012
	Land A	10/1/10	(1)	N/A	N/A	N/A	N/A	N/A
	Building A	10/1/10	(2)	$60,000	Straight-line	(3)	$22,125	(4)
	Land B	10/2/10	(5)	N/A	N/A	N/A	N/A	N/A
	Building B	Under Construction	$320,000	0	Straight-line	30	0	(6)
	Donated Equipment	10/2/10	(7)	6,000	150% declining balance	10	(8)	(9)
	Machinery A	10/2/10	(10)	8,000	Sum-of-the-years'-digits	8	(11)	(12)
	Machinery B	10/1/11	(13)	0	Straight-line	20	0	(14)
	N/A - Not applicable
	Instructions:
	For each numbered item on the schedule above, supply the correct amount. Round each answer
	to the nearest dollar.
			Answers		Calculations and/or explanations
	(1)
	(2)
	(3)			years
	(4)
	(5)
	(6)
	(7)
	(8)
	(9)
	(10)
	(11)
	(12)
	(13)
	(14)

W4-T2

Team #:
Exercise:	W4-T1 Impairment (Chapter 11)
	XYZ Company uses highly specialized equipment in its business. The equipment
	was purchased in January 2013 for		$ 6,000,000	and had an estimated useful life
	of 8 years with no salvage value. As December 31, 2014, new technology was introduced
	that would accelerate the obsolescence of the company's equipment. XYZ's controller
	estimates that the expected future net cash flows on the equipment will be				$ 3,300,000	and the
	fair value of the equipment will be		$2,400,000	. The company intends to continue
	using the equipment, but it is estimated that the remaining useful life is 4 years. Straight-line
	depreciation is used.
	(a) Prepare the journal entry (if any) to record the impairment at December 31, 2014.
	Computation for carrying value of asset
Dec. 31, 2014	Account Description	Amount
	Account Description		Amount
	(b) Prepare the journal entries for the equipment at December 31, 2015. The
	fair value of the equipment at December 31, 2015 is estimated to be			$2,600,000
Dec. 31, 2015	Account Description	Amount
	Account Description		Amount
	(c) Repeat the requirements for (a) and (b) above, assuming that XYZ intends to
	dispose of the equipment and that it has not been disposed of as of December 31, 2015.
Dec. 31, 2014	Account Description	Amount
	Account Description		Amount
Dec. 31, 2015	Account Description	Amount
	Account Description		Amount

W4-T3

Team #:
Exercise:	W4-T3 Accounting for Franchise, Patents, and Trade Name (Chapter 12)
	Information concerning Bailey Corporation's intangible assets is as follows.
1)	On January 1, 2012, Bailey signed an agreement to operate as a franchisee of Young Copy
	Service, Inc. for an initial fee of			$75,000	. Of this amount,	$15,000	was paid
	when the agreement was signed, and the balance is payable in					4	annual
	payments of	$15,000	each, beginning January 1, 2013. The agreement provides that the
	down payment is not refundable and no future services are required of the franchisor. The
	present value at January 1, 2012, of the 4 annual payments discounted at 14% (the implicit rate
	for a loan of this type) is		$43,700	. The agreement also provides that 5%
	of the revenue from the franchise must be paid to the franchisor annually. Bailey's revenue
	from the franchise for 2012 was			$950,000	. Bailey estimates the useful life of the
	franchise to be 10 years. (Hint: You may want to refer to Appendix 18A to determine the
	proper accounting treatment for the franchise fee and payments.)
2)	Bailey incurred		$65,000	of experimental and development costs in its laboratory
	to develop a patent that was granted on January 2, 2012. Legal fees and other costs
	associated with registration of the patent totaled				$25,000	. Bailey estimates
	that the useful life of the patent will be			10	years.
3)	A trademark was purchased from Kazu Company for				$64,000	on July 1, 2009.
	Expenditures for successful litigation in defense of the trademark totaling					$16,320
	were paid on July 1, 2012. Bailey estimates that the useful life of the trademark will be
	20	years from the date of acquisition.
	Instructions:
(a)	Prepare a schedule showing the intangible assets section of Bailey's balance sheet
	at December 31, 2012. Show supporting computations in good form.
(b)	Prepare a schedule showing all expenses resulting from the transactions that would
	appear on Bailey's income statement for the year ended December 31, 2012. Show
	supporting computations in good form.
	Franchise Schedule
	Description				Amount
	Description				Amount
	Description				Amount
	Patent Schedule
	Description				Amount
	Description				Amount
	Description				Amount
	Trademark Schedule
	Description				Amount
	Description				Amount
	Description				Amount
	Description				Amount
	Description				Amount
	Description				Amount
	Description				Amount
	Trademark Amortization - 2012
	Description				Amount
	Description				Amount
	Description				Amount
(a)	Bailey Corporation
	Intangible Assets (partial balance sheet)
	December 31, 2012
	Description				Amount
	Description				Amount
	Description				Amount
	Total intangible Assets				$ - 0
(b)	Bailey Corporation
	Expenses Resulting from Selected Intangible Asset Transactions
	For the Year Ended December 31, 2012
	Description				Amount
	Description				Amount
	Description				Amount
	Description				Amount
	Description				Amount
	Total expenses				$ - 0