ACC 330 - Summer 18
Chapter 10
On April 1, 2018, ABC purchased an existing factory for 2 million. The price
included title to land, the factory building, manufacturing equipment, and a patent
on a process the equipment uses. At the time of the purchase, the assets fair value
were:
Land $400k
Building $620k
Equipment $780k
Patent $450k
The company placed the assets into use on May 1, 2018 and decided that salvage
value and estimate life of the assets purchased would be:
Asset Salvage Value Estimate Life - (vrs.)
Land N/A N/A
Building 120k 40
Equipment 80k 20
Patent 150k 20
On November 1, 2022, management decided that the salvage value originally
estimated on the building should be 200k instead of 120k.
After suffering recurring losses due to changes in manufacturing laws and
continuous increases in the cost of raw material (due to the increase tariffs placed
on imported goods), management decided to sell the equipment and patent. On
January 1, 2023, management sold the Equipment and patent to XYZ
manufacturing company for $400k and $300k respectively.
Us the above information to answer the following questions:
1) At what price were the assets recorded on ABC booked when purchased on
April 1, 2018.
2) What is the depreciation expense for 2018 if the company used:
a. Straight line depreciation, and
b. Double declining balance depreciation.
3) What is the depreciation expense reported in the Income Statement for the
period ending December 31, 2022, after management had a change in
estimate?
4) Record the sale of the Equipment and Patent on January 1st, 2023.
