Question

1. Moreno Company purchased equipment for $450,000 on January 1, 2010, and will use the double-declining-balance method of depreciation. It is estimated that the equipment will have a 3-year life and a $20,000 salvage value at the end of its useful life. The amount of depreciation expense recognized in the year 2012 will be 2. Rooney Company incurred $280,000 of research and development cost in its laboratory to develop a patent granted on January 1, 2011. On July 31, 2011, Rooney paid $42,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2011, should be:

Answer 1

1.

Depreciation rate as per double-declining balance method = 100 / 3 * 2 = 67%

Depreciation expense in year 2010 = $450,000*67% = $301,500

Depreciation expense in year 2011 = $148,500 (450,000-301,500) * 67% = $99,495

Depreciation expense in year 2012 = $49,005 (148,500-99,495) - $20,000 = $29,005

2.

The total amount debited to patents through July 31, 2011 should be $42,000