Question

The following transactions and adjusting entries were completed by a paper-packaging company called Gravure Graphics International during 2015 and 2016. The company uses straight-line depreciation for trucks and other vehicles, double-declining-balance depreciation for buildings, and straight-line amortization for patents.

January	2	, 2015	Paid $92,000 cash to purchase storage shed components.
January	3	, 2015	Paid $3,000 cash to have the storage shed erected. The storage shed has an estimated life of 10 years and a residual value of $6,000.
April	1	, 2015	Paid $35,000 cash to purchase a pickup truck for use in the business. The truck has an estimated useful life of five years and a residual value of $4,000.
May	13	, 2015	Paid $500 cash for repairs to the pickup truck.
July	1	, 2015	Paid $23,000 cash to purchase patent rights on a new paper bag manufacturing process. The patent is estimated to have a remaining useful life of five years.
December	31	, 2015	Recorded depreciation and amortization on the pickup truck, storage shed, and patent.
June	30	, 2016	Sold the pickup truck for $30,000 cash. (Record the depreciation on the truck prior to recording its disposal.)
December	31	, 2016	Recorded depreciation on the storage shed. Determined that the patent was impaired and wrote off its remaining book value (i.e., wrote down the book value to zero).

Answer 1

Answer:

Calculation:
December 31, 2015:
Equipment:
Depreciation Expense on Equipment = (35,000 – 4,000) * 1/5* 9/12
Depreciation Expense on Equipment = $4,650

Buildings:
Double Declining Balance Depreciation Rate = 2 * Straight Line Depreciation Rate
Straight Line Depreciation Rate = 1/ Useful Life = 1/10 = 10%
Double Declining Balance Depreciation Rate = 2 * 10%= 20%

Depreciation Expense on Buildings = ($92,000 + $3,000) * 20%
Depreciation Expense on Buildings = $19,000

Patent:
Amortization Expense on Patent = 23,000 * 1/5* 6/12
Amortization Expense on Patent = $2,300