Question

For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on assets, liabilities, and net Income by entering for each account affected the account name and amount and indicating whether it is an addition (+) or a subtraction (-). Transaction a has been done as an illustration. Net income is not affected by every transaction. In some cases, only one column may be affected because all of the specific accounts affected by the transaction are included in that category. a. Recorded $200 of depreciation expense. b. Sold land that had originally cost $13,200 for $12,100 in cash. c. Recorded a $60,400 payment for the cost of developing and registering a patent. d. Recognized periodic amortization for the patent (in part c) using the maximum statutory useful life. e. Capitalized $3,000 of cash expenditures made to extend the useful life of production equipment. f. Expensed $2,100 of cash expenditures incurred for routine maintenance of production equipment. g. Sold a used machine for $9,500 in cash. The machine originally cost $31,500 and had been depreciated for the first two years of its five-year useful life using the double-declining-balance method. (Hint You must compute the balance of the accumulated depreciation account before you can record the sale.) h. Purchased a business for $328,000 in cash. The fair values of the net assets acquired were as follows: Land, $36,700; Buildings, $196,000; Equipment, $99,000; and Long-Term Debt, $66,700. Transaction Assets Accumulated depreciation -200 Liabilities a. Net Income Depreciation expenses -200 b. C. d e. 1. h.

Answer 1

Transaction	Assets	Liabilities	Net Income
a.	Accumulated Depreciation -200		Depreciation Expense -200
b.	Land -13,200		Loss on sale of land -1,100
	Cash +$12,100
c.	Patent +60,400
	Cash -60,400
d.	Patent -3,020		Amortization rent -3,020
e.	Production Equipment +3,000
	Cash -3,000
f.	Cash -2,100		Maintenance Expense -2,100
g.	Cash +9,500		Loss on sale of machine -1,840
	Machine -31,500
	Accumulated Depreciation +20,160
h.	Land +36,700	Long term liability +66,700
	Building +196,000
	Equipment +99,000
	Cash -328,000
	Goodwill +63,000

Double Declining Depreciation:

Double Declining Depreciation Rate = 100% / Useful life x 2 = 100% / 5 x 2 = 40%

Cost of Asset = $31,500

First Year Depreciation = 31,500*40% = 12,600

Second Year Depreciation = Book Value of Asset x 40% = (31,500– 12,600)*40% = 18,900*40% = $7,560

Total Accumulated Depreciation = 12,600+ 7,560= 20,160