Question

Intermediate Accounting Case Study Depreciation

On July 1, 2018, Tulsa Company pays $600,000 to acquire a fully equipped factory. The purchase includes the following assets and information:

Assets                                   Appraised value    Salvage Value                 Useful Life               Depreciation method

Land	$160,000	$0	n/a	Not depreciated
Land Improvements	$80,000	$0	10 years	Straight-line
Building	$320,000	$100,000	10 years	Double-declining balance
Machinery	$240,000	$20,000	10,000 units	Units-of-production
TOTAL	$800,000

1. Allocate the total $800,000 purchase cost among the separate assets based on appraised value.
2. Compute the 2018 (six months) and 2019 depreciation expense for each assets, and compute the company’s total depreciation expense for both years. The machinery produced 700 units in 2018 and 1,800 units in 2019.
3. On the last day of calendar-year 2020, Tulsa discarded equipment that had been on its books for five years. The equipment’s original cost was $12,000 (estimated life of five years) and its salvage value was $2,000. No depreciation had been recorded for the fifth year when th disposal occurred. Journalize the fifth year of depreciation (straight-line method) and the asset’s disposal.
4. At the beginning of year 2020, Tulsa purchased a patent for $100,000 cash. The company estimated the patent’s useful life to be 10 years. Journalize the patent acquisition and its amortization for the year 2020.

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