Determining Financial Statement Effects of Activities Related to Various Long-Lived Assets...

Determining Financial Statement Effects of Activities Related to Various Long-Lived Assets (P8-8)

During the 2012 annual accounting period, Nguyen Corporation completed the following transactions:

a. On January 1, 2012, purchased a license for $7,200 cash (estimated useful life, four years).

b. On January 1, 2012, repaved the parking lot of the building leased from H. Lane. The cost was $17,800; the estimated useful life was five years with no residual value. The lease will expire in 10 years. (Amounts spent to enhance leased property are capitalized as intangible assets called Leasehold Improvements.)

c. On July 1, 2012, purchased another business for $120,000 cash. The transaction included $115,000 for the assets and $24,000 for the liabilities assumed by Nguyen. The remainder was goodwill with an indefinite life.

d. On December 31, 2012, sold Machine A for $6,000 cash. Original cost, $21,500; accumulated depreciation (straight line) to December 31, 2011, $13,500 ($3,500 residual value and four-year life).

e. Total expenditures during 2012 for ordinary repairs and maintenance were $6,700.

f. On December 31, 2012, paid $8,000 for a complete reconditioning of Machine B acquired on January 1, 2009. Original cost, $18,000; accumulated depreciation (straight line) to December 31, 2011, $12,000 ($2,000 residual value and four-year life).

Required:

1. For each of these transactions, indicate the accounts, amounts, and effects (+ for increase and – for decrease) on the accounting equation. Use the following structure:

2. For each of these assets, except the assets not detailed in (c), compute depreciation and amortization to be recorded at the end of the year on December 31, 2012.