Posted: September 16th, 2017

Springfield Corporation and Fred Corporation solution

1. Springfield Corporation purchases a new machine on March 3, 20X4 for $35,600 in cash. It pays an additional $3,400 to transport and set up the machine. Springfield’s accountant determines that the equipment has no residual value and that the useful life is five years. It is expected to generate 2,400,000 units during its life. Assume Springfield employs the half-year convention.

A. Record the purchase of the machine.

B. Assume that Springfield uses the straight-line method of depreciation. Record depreciation expense for the first two years of the machine’s life.

C. Assume that Springfield uses the double-declining balance method of depreciation. Record depreciation expense for the first two years of the machine’s life.

D. Assume that Springfield uses the units-of-production method of depreciation. During Year 1, the machine produces 600,000 units. During Year 2, the machine produces 578,000 units. Record depreciation expense for the first two years of the machine’s life.

2. On 1/1/X6 Fred Corporation purchases a patent from Barney Company for $10,000,000, payable at the end of three years. The patent itself has an expected life of ten years. No interest rate is stated, but Fred could borrow that amount from a bank at 6 percent interest.

A. Record the journal entry to record the patent on 1/1/X6.

B. Record the journal entries to record interest expense and amortization expense on 12/31/X6, 12/31/X7, and 12/31/X8.

C. Record the journal entry to show that Fred pays off the note payable on 12/31/X8

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