During the current year, Rothchild, Inc., purchased two assets that are described as follows: Heavy Equipment
Purchase price, $275,000.
Expected to be used for 10 years, with a residual value at the end of that time of $50,000.
Expenditures required to recondition the equipment and prepare it for use, $75,000.
Patent
Purchase price, $75,000.
Expected to be used for five years, with no value at the end of that time.
Rothchild depreciates heavy equipment by the declining-balance method at 150 percent of the straight-line rate. It amortizes intangible assets by the straight-line method. At the end of two years, because of changes in Rothchild's core business, it sold the patent to a competitor for $35,000.
a. Compute the amount of depreciation expense on the heavy equipment for each of the first three years of the asset's life.(Omit the "$" sign in your response.)
Year 1 Year 2 Year 3
Depreciation expense $ $ $
b. Compute the amount of amortization on the patent for each of the two years it was owned by Rothchild.(Omit the "$" sign in your response.)
Year 1 Year 2
Amount of amortization $ $
c-1. Prepare the plant and intangible assets section of Rothchild's balance sheet at the end of the first and second years.(Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)
Year 1
Accumulated amortization Equipment Accumulated depreciation Purchase price Patent $
Equipment Patent Less: Accumulated depreciation Accumulated amortization Add: Accumulated depreciation $
Equipment Patent Accumulated amortization Purchase price Accumulated depreciation
Total plant and intangible assets $
Year 2
Accumulated depreciation Accumulated amortization Equipment Purchase price Patent $
Accumulated amortization Patent Add: Accumulated depreciation Equipment Less: Accumulated depreciation
Total plant assets $
c-2. Calculate the amount of the gain or loss on the patent that would be included in the second year's income statement.(Input the amount as positive values. Omit the "$" sign in your response.)
Gain Losson sale by $

Rothschild, Inc.

a. Depreciation expense on the Heavy Equipment for first three years:

Depreciation expense:

Year 1         105,000

Year 2          73,500

Year 3          51,450

b. Amortization on the patent for each of the two years:

Year 1 = 15,000

Year 2 = 15,000

c. Rothschild's Balance Sheet at the end of the first and second years:

Year 1  

Equipment                               $350,000

less accumulated depreciation 105,000    $245,000

Patent                                        $75,000

less accumulated amortization   15,000      $60,000

Total plant and intangible assets               $305,000

Year 2

Equipment                               $350,000

less accumulated depreciation 178,500    $171,500

Patent                                        $75,000

less accumulated amortization  30,000    $45,000

Total plant and intangible assets             $216,500

c.2. Loss from sale of patent = 10,000

Explanation:

a) Data and Calculations:

                                              Heavy Equipment    Patent

Purchase price                               $275,000        $75,000

Expenditures to recondition for use 75,000          0

Residual value at end of lifetime     (50,000)         0

Depreciable amount                     $300,000        $75,000

Estimated useful life                       10 years           5 years

Depreciation methods                Declining-bal.    Straight-line

Annual depreciation of patent                              $15,000 ($75,000/5)

Depreciation rate                             30%               20% (100%/5)

Sales proceeds at end of year 2                           $35,000

a. Depreciation expense on the Heavy Equipment for first three years:

Depreciation expense:

Year 1         $105,000 ($350,000 * 30%)

Year 2          $73,500 ($245,000 * 30%)

Year 3          $51,450 ($171,500 * 30%)

b. Amortization on the patent for each of the two years:

Year 1 = $15,000

Year 2 = $15,000

c. Rothschild's Balance Sheet at the end of the first and second years:

Year 1  

Equipment                               $350,000

less accumulated depreciation 105,000    $245,000

Patent                                        $75,000

less accumulated amortization   15,000      $60,000

Total plant and intangible assets               $305,000

Year 2

Equipment                               $350,000

less accumulated depreciation 178,500    $171,500

Patent                                        $75,000

less accumulated amortization  30,000    $45,000

Total plant and intangible assets             $216,500

c.2. Loss from sale of patent = $10,000 ($45,000 - $35,000)

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