- Since the depreciable cost is $50,000 (i.e., $53,000 purchase price less the salvage value of $3,000) and the annual depreciation is $5,000, it has a 10-year life (ie., $50,000/$5,000 per year = 10 years). The balance in Accumulated Depreciation indicates that 3 years of life have expired (i.e., $15,000/$5,000 per year = 3 years). Since the asset's useful life is 10 years and 3 years have passed, then 7 years remain.
A company's average total assets for the year are $4,000,000, its average total stockholders' equity for the year are $3,000,000, its net income is $900,000, its gross margin is $5,000,000, and its net sales are $12,000,000. What is its return on assets? At the start of the current year, a company paid for the following in cash:
Prepaid rent, $500,000
Research and development, $500,000
It amortizes its intangibles over 10 years. Determine its current year amortization expense.
- The intangibles are trademarks, patents, copyrights, and goodwill. Only patents and copyrights are amortized.
Amortization expense = ($1,500,000 + 2,000,000)/10 years = $350,000 per year.
Research & development is not an intangible asset even though research & development may lead to new intangibles, such as patents or copyrights. Goodwill is not amortized because it is considered to have an indefinite life. Trademarks are registered with the U.S. patent office and have lives of 20 years but they may be renewed indefinitely; because trademarks (and trade names) have indefinite lives, they are not amortized.
A company has the following asset account balances:Buildings and equipment, $6,400,000; Accumulated depreciation, $1,600,000; Patents, $1,050,000; Inventory, $1,200,000; and Goodwill, $4,000,000. How much will be reported on the balance sheet under property, plant & equipment? a. operating costs
- The historical cost principle dictates that assets should be recorded at their cost, including the invoice price adjusted for returns, allowances, discounts and including shipping costs, installation costs, and any other costs incurred to buy, receive, and prepare the asset for use. After the asset is installed and operational, additional costs are operating costs (i.e., operating expenses, such as repairs and maintenance expense).
- Annual depreciation = (Cost - Salvage value)/LifeAccumulated depreciation for 2021‐2023 = 3 x annual depreciationBook value = Cost of the equipment minus accumulated depreciation on the equipment.
Annual depreciation = ($80,000 - 10,000)/10 years = $7,000 per yearAccumulated depreciation for 2021‐2023 = 3 years x $7,000/year = $21,000
Equipment costLess: Accumulated depreciation already recorded Book value at the start of the fourth yearLess: Salvage valueRemaining depreciable basisRevised remaining useful life
Revised annual depreciation
$ 80,000 ( 21,000) 59,000
( 10,000) 49,000
3 years (Years: 2024‐2026) $ 16,333
loss of $12,000
- If the proceeds from the sale is more than the asset's book value then the company recognizes a gain, but if it is less then it recognizes a loss.
Loss of disposal of plant assets = Plant asset - Accumulated depreciation - Cash received
Depreciation per year = ($90,000 - 15,000)/5 = $15,000 per yearAccumulated depreciation = 4.6667 years x $15,000 per year = $70,000
Loss = $90,000 - 70,000 - 8,000 = $12,000