Question

Amortization and Depletion Entries

Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:
a.Timber rights on a tract of land were purchased for $864,000 on July 10. The stand of timber is estimated at 3,600,000 board feet. During the current year, 1,500,000 board feet of timber were cut and sold.
b.On December 31, the company determined that $4,000,000 of goodwill was impaired.
c.Governmental and legal costs of $1,170,000 were incurred on April 10 in obtaining a patent with an estimated economic life of 12 years. Amortization is to be for three-fourths of a year.
Instructions:
Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items. Do not round your intermediate calculations but round your final answers to the nearest dollar.

Answer 1

Amortization and depletion are concepts used to allocate costs of assets. The depletion for timber rights is $360,000 for the current year. The amortization for the patent is $97,500 for the current year.

Step-by-step explanation:

Amortization and depletion are accounting concepts used to allocate the costs of assets over their useful life. Amortization is typically used for intangible assets, such as patents, while depletion is used for natural resources, such as timber rights.

For the timber rights, the amount of depletion can be calculated by dividing the cost of the timber rights by the estimated amount of timber. In this case, the depletion for the current year would be $864,000 (cost of timber rights) divided by 3,600,000 board feet (estimated timber), multiplied by 1,500,000 board feet (timber cut and sold), which equals $360,000.

For the intangible asset (patent), the amount of amortization can be calculated by dividing the cost of the patent by its estimated economic life. In this case, the cost of the patent is $1,170,000 and the estimated economic life is 12 years. Since the amortization is for three-fourths of a year, the amortization for the current year would be $1,170,000 divided by 12 years, multiplied by 3/4, which equals $97,500.