Page 478 - Accounting Principles (A Business Perspective)

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Prepare journal entries to record the 2009 transactions and the necessary 2009 December 31, adjusting entries,
assuming a calendar-year accounting period. Use the straight-line depreciation method.
Problem D On 2009 January 2, York Mining Company acquired land with ore deposits at a cash cost of USD

1,800,000. Exploration and development costs amounted to USD 192,000. The residual value of the land is
expected to be USD 360,000. The ore deposits contain an estimated 6 million tons. Present technology will allow
the economical extraction of only 85 per cent of the total deposit. Machinery, equipment, and temporary sheds were
installed at a cost of USD 255,000. The assets will have no further value to the company when the ore body is
exhausted; they have a physical life of 12 years. In 2007, 200,000 tons of ore were extracted. The company expects
the mine to be exhausted in 10 years, with sharp variations in annual production.
a. Compute the depletion charge for 2009. Round to the nearest cent.

b. Compute the depreciation charge for 2009 under the units-of-production method.
c. If all other mining costs, except depletion, amounted to USD 1,260,000, what was the average cost per ton
mined in 2009? (The depreciation calculated in b is included in the USD 1,260,000.)
Problem E East Company spent USD 249,900 to purchase a patent on 2009 January 2. Management assumes
that the patent's finite useful life is 17 years. In January 2010, the company hired an outside law firm and
successfully defended the patent in a lawsuit at a cost of USD 48,000. Also, in January 2010, the company paid
USD 72,000 to obtain patents that could, if used by competitors, make the earlier East patent useless. The
purchased patents will never be used.
Give the entries for 2009 and 2010 to record the information relating to the patents.

Problem F Following are selected transactions and other data relating to Long Company for the year ended
2009 December 31.
a. The company rented the second floor of a building for five years on 2009 January 2, and paid the annual rent
of USD 18,000 for the first and fifth years in advance.
b. In 2008, the company incurred legal fees of USD 54,000 paid to an outside law firm in applying for a patent
and paid a fee of USD 18,000 to a former employee who conceived a device that substantially reduced the cost of
manufacturing one of the company's products. The patent on the device has a market value of USD 540,000 and is

expected to be useful for 10 years.
c. In 2008, the company entered into a 10-year operating lease on several floors of a building, paying USD
36,000 in cash immediately and agreeing to pay USD 18,000 at the end of each of the 10 years of life in the lease.
The company then incurred costs of USD 72,000 to install partitions, shelving, and fixtures. These items would
normally last 25 years.
d. The company spent USD 21,600 promoting a trademark in a manner that it believed enhanced the value of
the trademark considerably. The trademark has an indefinite life.
e. The company incurred costs amounting to USD 180,000 in 2008 and USD 234,000 in 2009 for research and
development of new products that are expected to enhance the company's revenues for at least five years.

f. The company paid USD 180,000 to the author of a book that the company published on 2009 July 2. Sales of
the book are expected to be made over a two-year period from that date.
For each of the situations just described, prepare only the journal entries to record the expense applicable to
2009.

Accounting Principles: A Business Perspective 479 A Global Text