1. Depreciation

XYZ Corporation purchased a new computer server for $78,000 from Dell. Dell added 7% sales taxes and shipping costs of $2,000. XYZ information technology employees spent 100 hours installing and testing the new server. Average wages for XYZ information technology employees are $50 per hour. XYZ estimates the server has a useful life of 4 years and $5,000 residual value. XYZ uses double-declining balance deprecation method for computer equipment. The server was placed in service on April 1, 2014. XYZ fiscal year ends on December 31.

What is recorded as computer asset? _____________________________________

What is the depreciation expense for 2014? _____________________________________

2. Patent

ABC Company develops cures for cancer.

1. ABC spent $1,000,000 developing a cure for pancreatic cancer. They submitted a patent application that costs $30,000 to prepare and $10,000 filing fees.
2. ABC acquired patents from Komen Corp for possible cures for breast cancer. ABC paid $500,000 for these patents. After acquiring the patents, ABC spent $250,000 to further advance the cure for breast cancer.
3. ABC successfully defended a patent infringement lawsuit against its brain cancer drug patents. ABC spent $60,000 in legal fees on the lawsuit.

What is recorded in the Patent long-term asset account? ____________________________

What is recorded in R&D and other expense accounts? ______________________________

3. Exchange

Intelligent Corporation recently acquired new semiconductor assembly equipment to be used in its production process. Intelligent Corporation traded in old semiconductor equipment that had an original cost of $300,000 and accumulated depreciation on the date of the exchange of $225,000. The fair value of the old equipment is $85,000. In addition, Intelligent Corporation signed a promissory note to pay $200,000 in three years plus interest at a market interest rate of 6%.

What is the cost recorded for the new equipment? ____________________________________

What is the gain/(loss) on disposal of the old equipment? ____________________________

4. Impairment

The Blueberry Phone Company operates a factory to build its Crackberry phone. Technological advances by Blueberrys competitors demolished Crackberry sales. Consequently, management is evaluating the Crackberry factory for impairment as of December 31, 2014. Below are facts about the factory.

Original cost $150 million

Accumulated depreciation 65 million

Future cash flows:

2015 45 million

2016 20 million

2017 10 million

Is factory impaired? ____________ Why? ________________________________________________

What is the present value of future cash flows rounded to $100,000 (Assume the cash is received at the end of each year and use an interest rate of 10%.):

2015 ________________________________

2016 ________________________________

2017 _______________________________

Total ________________________________

What is the impairment loss? ___________________________________________