Togo\'s Sandwich Shop had the following long-term asset balances as of January 1

Question

Togo's Sandwich Shop had the following long-term asset balances as of January 1, 2012:

           Cost     Accumulated Depreciation  Book Value
Land  $ 75,000             -                            75,000
Building  550,000      $(104,500 )                445,100
Equipment  150,000    (28,000 )                 122,000
Patent  100,000         (40,000 )                 60,000


Togo's purchased all the assets at the beginning of 2010 (3 years ago). The building is depreciated over a 20-year service life using the double-declining-balance method and estimating no residual value. The equipment is depreciated over a 10-year useful life using the straight-line method with an estimated residual value of $10,000. The patent is estimated to have a five-year service life with no residual value and is amortized using the straight-line method.

a) For the year ended December 31, 2012, record depreciation expense for building and equipment. Land is not depreciated

b) For the year ended December 31, 2012, record amortization expense for the patent

c) Calculate the book value for each of the four long-term assets at December 31, 2012.
Land-
Building-
Equipment-
Patent-



Please can you show your work so I can understand what you are doing.

Thanks

Explanation / Answer

(A). Depreciation expense: Asset balances as of January 1, 2012 are as follows;
Cost             Accumulated        Depreciation       Book Value Building           550,000              $(104,900 )         445,100
Equipment       152,000              (28,400 )            123,600 Double-declining-balance method is used to calculate the depreciation for the building. Double declining balance depreciation = (Cost - Accumulates depreciation) x 2/life x n/12 = (550,000 - 104,900) x 2/20 x 3/12 = 445,100 x 0.1 x 0.25 = 11127.5 So depreciation expense for Building = $11,127.5 Journal entry to record the depreciation expense; Depreciation expense Building (Dr)    11,127          Accumulated depreciation-Building (Cr) 11,127 So depreciation expense for Building = $11,127.5 Journal entry to record the depreciation expense; Depreciation expense Building (Dr)    11,127          Accumulated depreciation-Building (Cr) 11,127 Straight-line method: Straight-line method of depreciation is used to calculate the depreciation expense of equipment. Straight-line method of depreciation is used to calculate the depreciation expense of equipment. Depreciation expense = (Cost of the asset - Residual value) / Estimated useful life = (152,000 - 10,000) / 10 years = 142,000 / 10 years = 14,200 per year So depreciation expense for equipment per year = $14,200. Journal entry to record the depreciation expense; Depreciation expense Equipment (Dr)    14,200          Accumulated depreciation-Equipment (Cr) 14,200 Journal entry to record the depreciation expense; Depreciation expense Equipment (Dr)    14,200          Accumulated depreciation-Equipment (Cr) 14,200 B. Amortization expense: Straight-line method of amortization is used to calculate the amortization expense of patent. Amortization expense = (Cost of the asset - Residual value) / Estimated useful life = (115,000 - 0) / 5 years = 115,000 / 5 years = 23,000 per year So amortization expense for patent per year = $23,000. Straight-line method of amortization is used to calculate the amortization expense of patent. Amortization expense = (Cost of the asset - Residual value) / Estimated useful life = (115,000 - 0) / 5 years = 115,000 / 5 years = 23,000 per year So amortization expense for patent per year = $23,000. Straight-line method of amortization is used to calculate the amortization expense of patent. Amortization expense = (Cost of the asset - Residual value) / Estimated useful life = (115,000 - 0) / 5 years = 115,000 / 5 years = 23,000 per year So amortization expense for patent per year = $23,000. C. Book value of assets on 31 Dec 2012: Book value = Cost - Accumulated depreciation Here the cost is the book value of the assets on January 1, 2012. So Book value of Land = $81,000 - 0 = 81,000 Book value of Building: = 445,100 - $11,127 = $433,973 Book value of Equipment: = 123,600 - $14,200 = $109,400 Book value of patent: = 69,000 - $23,000. = $46,000 (Note: patent depreciation given wrong as 40,600, the right accumulated amortization of patent is 46,000) Book value of patent: = 69,000 - $23,000. = $46,000 (Note: patent depreciation given wrong as 40,600, the right accumulated amortization of patent is 46,000)

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