Page 476 - Accounting Principles (A Business Perspective)

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Boyd Company extracted 1,000,000 tons of the ore and sold 800,000 tons. What part of the USD 7,200,000
should be charged to expense during the first year?
Exercise H The Slate Mining Company acquired a tract of land for mining purposes and erected a building on-

site at a cost of USD 675,000 and having no salvage value. Though the building has a useful life of 10 years, the
mining operations are expected to last only 6 years. The company has determined that 800,000 tons of ore exist on
the tract but only 600,000 tons can be economically removed. If 100,000 tons of ore are extracted in the first year
of operations, what is the appropriate depreciation charge using the units-of-production method?
Exercise I Talse Company purchased a patent on 1995 January 1, at a total cost of USD 61,200. In 2006
January, the company hired an outside law firm and successfully defended the patent in a lawsuit. The legal fees
amounted to USD 13,500. What will be the amount of patent cost amortized in 2009? (The finite useful life of the

patent is the same as its legal life—17 years.)
Exercise J Don Jackson paid Hungry Hannah's Hamburgers USD 54,000 for the right to operate a fast-food
restaurant in Thomasville under the Hungry Hannah's name. Jackson also agreed to pay an operating fee of 0.5 per
cent of sales for advertising and other services rendered by Hungry Hannah's. Jackson began operations on 2009
January 2. Sales for 2009 amounted to USD 540,000. The finite useful life of the franchise is 40 years.
Give the entries to record the payment of the USD 54,000 and to record expenses incurred relating to the right
to use the Hungry Hannah's name.
Exercise K Lem Company leased the first three floors in a building under an operating lease contract for a 10-
year period beginning 2009 January 1. The company paid USD 240,000 in cash (not representing a specific

period's rent) and agreed to make annual payments equal to 1 per cent of the first USD 1,500,000 of sales and 0.5
per cent of all sales over USD 1,500,000. Sales for 2009 amounted to USD 4,500,000. Payment of the annual
amount will be made in January 2010.
Prepare journal entries to record the cash payment of 2009 January 1, and the proper expense to be recognized
for the use of the space in the leased building for 2009.
Exercise L Rye Company purchased all of the assets of Shef Company for USD 900,000. Rye Company also
agreed to assume responsibility for Shef Company's liabilities of USD 90,000. The fair market value of the assets

acquired was USD 810,000. How much goodwill should be recorded in this transaction? Give the journal entry to
record this transaction.
Problems
Problem A Orr Company traded in an automobile that cost USD 18,000 and on which USD 15,000 of up-to-
date depreciation has been recorded for a new automobile with a cash price of USD 34,500. The company received
a trade-in allowance (its fair value) for the old automobile of USD 2,100 and paid the balance in cash. The exchange

has commercial substance.
Record the exchange of automobiles.
Problem B On 2007 January 2, Blake Company purchased a delivery truck for USD 78,750 cash. The truck has
an estimated useful life of six years and an estimated salvage value of USD 6,750. The straight-line method of
depreciation is being used.
a. Prepare a schedule showing the computation of the book value of the truck on 2009 December 31.
b. Assume the truck is to be disposed of on 2010 July 1. Prepare the journal entry to record depreciation for the

six months ended 2010 June 30.

Accounting Principles: A Business Perspective 477 A Global Text