Page 480 - Accounting Principles (A Business Perspective)

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The office building is on the leased land and was completed on 2005 July 1, at a cost of USD 967,680; its
physical life is set at 40 years. The factory building is on the owned land and was completed on 2004 July 1, at a
cost of USD 2,184,000; its life is also set at 40 years with no expected salvage value.

The equipment has a 15-year useful life with no expected salvage value.
The company owns three trucks—A, B, and C. Truck A, purchased on 2007 July 1, at a cost of USD 53,760, had
an expected useful life of three years and a salvage value of USD 3,360. Truck B, purchased on 2008 January 2, at a
cost of USD 84,000, had an expected life of four years and an estimated salvage value of USD 6,720. Truck C,
purchased on 2009 January 2, at a cost of USD 100,800, had an expected life of five years and an estimated salvage
value of USD 10,080.
The following transactions occurred in the fiscal year ended 2010 June 30:

2009
July 1 Rent for2009 July 1, through 2010 June 30, on leased land was paid, USD 31,920.
Oct. 1 Truck A was traded in on truck D. Cash price of the new truck was USD 107,520. Cash of USD 90,720 was
paid. Truck D has an expected life of four years and a salvage value of USD 5,880. The exchange has no commercial
substance.
2010
Feb. 2 Truck B was sold for USD 47,040 cash.
June 1 Truck C was completely demolished in an accident. The truck was not insured.
Prepare journal entries to record these transactions and the necessary 2010 June 30, adjusting entries. Use the

straight-line depreciation method.
Alternate problem E In December 2008, Brown Company acquired a mine for USD 2,700,000. The mine
contained an estimated 10 million tons of ore. It was also estimated that the land would have a value of USD
240,000 when the mine was exhausted and that only 4 million tons of ore could be economically extracted. A
building was erected on the property at a cost of USD 360,000. The building had an estimated useful life of 35 years
and no salvage value. Specialized mining equipment was installed at a cost of USD 495,000. This equipment had an
estimated useful life of seven years and an estimated USD 33,000 salvage value. The company began operating on

2009 January 1, and put all of its assets into use on that date. During the year ended 2009 December 31, 400,000
tons of ore were extracted. The company decided to use the units-of-production method to record depreciation on
the building and the straight-line method to record depreciation on the equipment.
Prepare journal entries to record the depletion and depreciation charges for the year ended 2009 December 31.
Show calculations.
Alternate problem F Trask Company purchased a patent for USD 108,000 on 2009 January 2. The patent
was estimated to have a finite life of 10 years. The USD 108,000 cost was properly charged to an asset account and
amortized in 2009. On 2010 January 1, the company incurred legal and court costs of USD 32,400 in a successful
defense of the patent in a lawsuit. The legal work was performed by an outside law firm.

a. Compute the patent amortization expense for 2009 and give the entry to record it.
b. Compute the patent amortization expense for 2010 and give the entry to record it.
Alternate problem G Selected transactions and other data for Grant Company:

Accounting Principles: A Business Perspective 481 A Global Text