Solve the following problems

1. The Sunset Company Inc. purchase a machinery for $315,000 on May 1, 2018. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2019 The Sunset Company Inc. uses the machinery for 2,650 hours and the machinery produces 25,500 units.

Instructions: From the information given, compute the depreciation charge for 2019 under each of the following methods (round to three decimal places).

1. Straight-line

2. Units of output

3. Working hours

4. Sum of the years digits

5. Declining Balance (Use 20% as the annual rate)

2. The Blue Moon Co. has provided information on intangible assets as follows.

A patent was purchased from Riverside Company for $2,500,000 on January 1, 2011. Blue Moon estimated the remaining useful life of the patent to be 10 years. The patent was carried in Riversides accounting records at a net book value of $2,000,000 when sold it to Blue Moon Co.

During 2012, a franchise was purchased from Ice Age Inc. for $580,000. In addition, 5% of revenue from the franchise must be paid to Ice Age. Revenue from the franchise for 2012 was $2,500,000. Blue Moon Co. estimates the useful life of the franchise to be 10 years and takes a full years amortization in the year of purchase.

Blue Moon Co. incurred research and development costs in 2012 as follows;

1. Materials and equipment

2. Personnel

3. Indirect costs

   Total cost

$142,000 189,000 102,000

$433,000

Blue Moon Co. estimates that these costs will be recouped by December 31, 2015. The materials and equipment purchased have no alternative uses.

On January 1, 2012, because of recent events in the field, Blue Moon estimates that the remaining life of the patent purchased on January 1, 2011, is only 5 years from January 1, 2012.

Instructions:

Prepare a schedule showing the intangibles section of Blue Moon Co. balance sheet at December 31, 2012. Show supporting computations in good form.

Prepare a schedule showing the income statement effect for the year ended December 31, 2012, as a result of the facts above. Show supporting computations in good form.