Question
During Year 1, Cecil Group, Inc., acquired the following assets: Sedona Diamond Mine: Purchase price Carats of diamonds to be extracted Purchase transaction contracting costs
During Year 1, Cecil Group, Inc., acquired the following assets: Sedona Diamond Mine: Purchase price Carats of diamonds to be extracted Purchase transaction contracting costs 3,338,881,498 100,000 217,027,297 Red Rock Diamond Claw: Purchase price Estimated salavge value Estimated useful life (years) Cost to install and customize Transportation costs (FOB shipping point) Sales tax (on purchase price) 434,054,594 36,894,640 6 19,532,456 8,681,091 6.10% Patent on Diamond Sluice: Cecil's patent development costs 13,146,000 Expected useful life (years) 12 In addition, Cecil owns its trademark, an emerald cut diamond inscribed inside a green, five-sided star, for which it paid $9,000,000 more than 50 years ago. Cecil depreciates diamond claws using the double declining balance (DDB) method, it amortizes intangibles on a straight-line basis, and it depletes diamond mines on the basis of the number of carats extracted. Required: A. Compute the depreciation schedule for the extractor. B. After 3 years, Cecil refurbishes the extractor at a cost of $104,700,000 thereby extending its useful life for 4 additional years (i.e., a total of 7 years after year 3). Assuming the diamond claws estimated residual value after refurbishing is $25,000,000, prepare the diamond claws depreciation schedule for its remaining expected useful life. C. Cecil sold the diamond sluice patent at the end Year 3 for $100,000,000. Compute the gain or loss on the sale of the patent to be included on the Year 3 income statement. D. Assuming Cecil extracted 7,500 carats of diamonds from the mine in Year 1, 8,250 carats of diamonds from the mine in Year 2, and 9,150 carats of diamonds from the mine in Year 3. a. How much inventory (or depletion expense) did Cecil report each year? b. What is the mines net book value at the end of the third year? E. Assume the answer to D.b. is $2,700,000,000. The government of Columbiana seized the Sedona Diamond Mine on January 1 of Year 4. The seizure was without compensation to Cecil. Prepare in good form the journal entry/entries necessary for Cecil to record the mine seizure. F. On January 1, Year 6, the Supreme Court of Columbiana ruled that Cecils trademark was in the public domain, and could be used by anyone or any company for any reason without compensation to Cecil. Prepare in good form the journal entry/entries necessary to record the effects of the Courts ruling.
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