# Acc422 Intermediate Accounting: Week 4 Assignment (E11-4,P11-6, P12-1, E12-16)

Acc422 Intermediate Accounting (December 2013 Version)
Week 4 Assignment

E11-4 (Depreciation Computations-Five Methods)
Wenner Furnace Corp. purchased machinery for \$633,330 on May 1, 2012. It is estimated that it will have a useful life of 10 years, salvage value of \$34,050, production of 544,800 units, and working hours of 25,000. During 2013, Wenner Corp. uses the machinery for 2,650 hours, and the machinery produces 57,885 units.
From the information given, compute the depreciation charge for 2013 under each of the following methods. (Round answers to 0 decimal places, e.g. \$45,892)
a. Straight-line.
b. Units-of-output. (Round depreciation cost per unit to 2 decimal places, i.e. 12.25 and and final answer to 0 decimal places, i.e. 25,240.)
c. Working hours.
d. Sum-of-the-years'-digits.
e. Declining-balance (use 20% as the annual rate).

P11-6 (Depletion, Timber, and Extraordinary Loss)
Conan O'Brien Logging and Lumber Company owns 3,200 acres of timberland on the north side of Mount Leno, which was purchased in 2000 at a cost of \$600 per acre. In 2012, O'Brien began selectively logging this timber tract. In May of 2012, Mount Leno erupted, burying the timberland of O'Brien under a foot of ash. All of the timber on the O'Brien tract was downed. In addition, the logging roads, built at a cost of \$160,000, were destroyed, as well as the logging equipment, with a net book value of \$349,200.
At the time of the eruption, O'Brien had logged 20% of the estimated 530,000 board feet of timber. Prior to the eruption, O'Brien estimated the land to have a value of \$310 per acre after the timber was harvested. O'Brien includes the logging roads in the depletion base.
O'Brien estimates it will take 3 years to salvage the downed timber at a cost of \$712,000. The timber can be sold for pulp wood at an estimated price of \$2 per board foot. The value of the land is unknown, but must be considered nominal due to future uncertainties.
a. Determine the depletion cost per board foot for the timber harvested prior to the eruption of Mount Leno. (Round answer to 2 decimal places.)
b. Prepare the journal entry to record the depletion prior to the eruption. (Round per unit answer to 2 decimal places,e.g. 0.45 for computation purposes and final answer to 0 decimal places, e.g. \$45,892. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually)
c. If this tract represents approximately half of the timber holdings of O'Brien, determine the amount of the extraordinary loss due to the eruption of Mount Leno for the year ended December 31, 2012. (Do not round intermediate computations and round your answer to 0 decimal places, i.e. 25,250.)

E12-16 (Accounting for R & D Costs)
Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2011, the company expends \$341,880 on a research project, but by the end of 2011 it is impossible to determine whether any benefit will be derived from it.
a. The project is completed in 2010, and a successful patent is obtained. The R & D costs to complete the project are \$131,580. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2012 total \$22,900. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2012.
b. In 2013, the company successfully defends the patent in extended litigation at a cost of \$55,120, thereby extending the patent life to December 31, 2020. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2013.

P12-1 (Correct Intangible Asset Account)
Reichenbach Co., organized in 2011, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2012 and 2013.
Intangible Assets
01-Jul-12 8-year franchise; expiration date 6/30/19 51,840
01-Oct-12 Advance payment on laboratory space (2-year lease) 26,080
31-Dec-12 Net loss for 2011 including state incorporation fee, \$1,960,
and related legal fees of organizing, \$4,620 (all fees
incurred in 2011) 16,030
02-Jan-13 Patent purchased (10-year life) 84,280
01-Mar-13 Cost of developing a secret formula (indefinite life) 79,370
01-Apr-13 Goodwill purchased (indefinite life) 275,060
01-Jun-13 Legal fee for successful defense of patent purchased above 22,885
01-Sep-13 Research and development costs 153,900

Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2013, recording any necessary amortization and reflecting all balances accurately as of that date. (Ignore income tax effects.) (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)