The Buchanan Company purchased a machine on November 1,2009, for $14,000. At the
ID: 2551753 • Letter: T
Question
The Buchanan Company purchased a machine on November 1,2009, for $14,000. At the time of acquisition, the machine was estimated to have a useful life of ten years and an estimated salvage value of $4,000. Buchanan has r recorded monthly depreciation using the straight-line method. On July 1, 2018, the hine was sold for $13,000. What should be the loss recognized from the sale of the machine? a. $10.200 b. $4,000 C. $5,000 d. $13,000 On January 1,2014, Jackson Company purchased for $600,000, a trademark with an estimated useful life of 16 years. In January 2018, Jackson paid $90,000 for legal fees in a successful defense of the trademark Trademark amortization expense for the year ended December 31, 2018, should be a. $37,500. b. $43,125. c. $45,000 d. $90,000. 24. 25. Madison Carpet traded cleaning equipment with a cost of $27,000 and accumulated depreciation of $5,250 for new equipment with a fair market value of $14,500. Assuming the exchange lacks commercial substance, Madison should record the new equipnent at a. $14,500. b. $14,750. C. $7,500. d. $13,750. 26. Legal fees incurred in successfully defending a patent suit should be capitalized when the patent has been Internally Purchased from Developedan Inventor a. No b. Yes . Yes d. No Yes No Trucking traded a used truck with a book value of $1,700 and a fair market value of $2,300 for a new truck with a list price of $17,800. Jefferson agreed to pay $13,000 in cash for the exchange in addition to iving up the used truck. Assuming the exchange has commercial substance, at what amount should the new truck be recorded? a. $17,800 b. $14,700 c. $15,300 d. None of these Polk Corporation bought a new machine and agreed to pay for it in equal annual installments of $6,000 at the end of each of the next five years. Assume the prevailing interest rate for this type of transaction is 12%. Assume the present value of an ordinary annuity of SI at 12% for five periods is 3.60. The future amount of an ordinary annuity of $1 at 12% for five periods is 635. The present value of S1 at 12% is 0.567. How much should Polk record as the note payable on the balance sheet if financial statements were prepared today? a. $17,010 b. $30,000 c. $38,100 d. $21,600 27. Jefferson 28.Explanation / Answer
23) Monthly depreciation using straight line = (Cost - Salvage Value)/Useful life in Months
= ($148,000 - $4,000)/(10 yrs*12 months)
= $144,000/120 months = $1,200 per month
Total Months machine used = from Nov 2009 to June 2018
= 104 months
Total depreciation charged upto date of sale = $1,200*104 months = $124,800
Book Value on the date of sale = Cost - Depreciation charged
= $148,000 - $124,800 = $23,200
Loss on sale of Machine = Book value of Machine - Sale Value
= $23,200 - $13,000 = $10,200
Therefore the correct answer is a) $10,200.
24) Amortization exp. for first four yrs (from 2014 to 2017) = Cost/Useful life
= $600,000/16 yrs = $37,500 per year
Book value as on Jan 1, 2018 = Cost - Amortization exp. upto this date
= $600,000 - ($37,500*4 yrs)
= $600,000 - $150,000 = $450,000
New Capital expenditure for Patent = $90,000
Amortization expense for 2018 = (Book Value as on Jan 1, 2018+Capital exp)/Remaining useful life
= ($450,000+$90,000)/12 yrs = $45,000
Therefore the correct answer is c) $45,000.
25) As the exchange lacks commercial substance, Madison should record the new equipment at its fair market value. The fair market value of the new equipment is $14,500. Therefore the correct answer is a) $14,500.
26) Legal fees incurred in successfully defending a patent suit should be capitalized whether the patent is internally developed or purchased from an inventor. Under self created patents, if the defense of the patent is successful the cost related should be capitalized but if defense of the patent is unsuccessful, legal costs of defense are expensed.
In the given case, the defense of the patent is successful hence legal fees should be capitalized.
Therefore the correct answer is b) Internally developed Yes Purchased from an Inventor Yes.
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