Becker Office Service purchased a new computer system in 2016 for $36,300. It is expected to have a five-year useful life and a $2,500 salvage value. The company expects to use the system more extensively in the early years of its life.

Becker Office Service purchased a new computer system in 2016 for $36,300. It is expected to have a five-year useful life and a $2,500 salvage value. The company expects to use the system more extensively in the early years of its life.

Required

a.	Calculate the depreciation expense for each of the five years, assuming the use of straight-line depreciation.

Calculate the depreciation expense for each of the five years, assuming the use of double-declining- balance depreciation.

Explanation:

a.

Straight-line

(Cost – Salvage value) ÷ Useful life = Annual depreciation

Year 1	($36,300	−	2,500)	÷	5	=	$	6,760	per year
2								6,760
3								6,760
4								6,760
5								6,760

b.

Double-declining balance

Accum. depreciation

(Cost – at beginning of period) × (2 × SL rate) = Annual depreciation

Year 1	($	36,300	−	$	0	)	×	(2	×	0.20	)	=	$	14,520
2	($	36,300	−	$	14,520	)	×	(2	×	0.20	)	=		8,712
3	($	36,300	−	$	23,232	)	×	(2	×	0.20	)	=		5,227
4	($	36,300	−	$	28,459	)	×	(2	×	0.20	)	=		3,136
5	($	36,300	−	$	31,595	)	×	(2	×	0.20	)	=		2,205	*

*The total depreciable cost is $33,800 ($36,300 − $2,500). The depreciation taken in Year 5 is limited to $2,205 [$33,800 – ($14,520 + $8,712 + $5,227 + $ 3,136)].

d.

Straight-line:

Book value	$	36,300		–	$	20,280	*	=	$	16,020
Sales price	$	19,000
Book value		(16,020	)
Gain	$	2,980

*6,760 × 3 = $20,280

Double-declining-balance:

Book value	$	36,300		–	$	28,459	*	=	$	7,841
Sales price	$	19,000
Book value		(7,841	)
Gain	$	11,159

*$14,520 + $8,712 + $5,227 = $28,459

Thank you!

Dynamo Manufacturing paid cash to acquire the assets of an existing company. Among the assets acquired were the following items:

Dynamo Manufacturing paid cash to acquire the assets of an existing company. Among the assets acquired were the following items:

Patent with 4 remaining years of legal life	$38,900
Goodwill	40,000

Dynamo’s financial condition just prior to the acquisition of these assets is shown in the following statements model:

Assets

=

Liab.

+

Equity

Rev.

–

Exp.

=

Net Inc.

Cash Flow

Cash

+

Patent

+

Goodwill

90,600

+

NA

+

NA

=

NA

+

90,600

NA

–

NA

=

NA

NA

Required:

a.	Compute the annual amortization expense for these items.

b. Record the acquisition of the intangible assets and the related amortization expense for year 1 in a horizontal statements model like the one shown above.

 

Prepare the journal entries to record the acquisition of the intangible assets and the related amortization for year 1.

 

Explanation:

a.

Patent $38,900 ÷ 4 = $9,725 per year

The goodwill is not amortized under GAAP.
Thanks