1. Depreciation Expense
Valley Corporation purchased a new piece of equipment on June 1, 2015. The cost
of this machine was $325,000. The company estimated that the machine would
have a salvage value of $25,000 at the end of its service life. Its life is estimated at
four years, and its working hours are estimated at 50,000 hours. The year end is
December 31.
Compute the depreciation expense under the following methods in an Excel
spreadsheet. Each of the following should be considered unrelated:
1. Straight-line depreciation for 2015
2. Units of production method for 2015, assuming that machine usage
was 13,000 hours
3. Sum-of-the-years’ digits for 2015
4. Double-declining balance for 2015
2. Remaining Life
Taylor Lewis Company has provided information on intangible assets as follows.
A patent was purchased from Craig Company for $4,000,000 on June 1, 2015.
Lewis estimated the remaining useful life of the patent to be eight years. The
patent was carried in Craig’s accounting records at a net book value of $3,500,000
when Craig sold it to Lewis.
During 2016, a franchise was purchased from Faragher Company for $360,000. In
addition, 8% of revenue from the franchise must be paid to Faragher. Revenue
from the franchise for 2016 was $1,950,000. Lewis estimates the useful life of the
franchise to be 12 years and takes a full year’s amortization in the year of
purchase.
Lewis incurred research and development costs in 2016 as follows:
Materials and equipment
Personnel
Indirect costs $286,500
$153,700
$95,355
$535,555 Lewis estimates that these costs will be recouped by December 31, 2019. The
materials and equipment purchased have no alternative uses.
On January 1, 2016, because of recent events in the field, Lewis estimates that the
remaining life of the patent purchased on June 1, 2015, is only five years from
January 1, 2016. 1
2 Prepare a schedule showing the intangible section of Lewis’s
balance sheet at December 31, 2016. Show supporting
computations in good form.
Prepare a schedule showing the income statement effect for the
year ended December 31, 2016, as a result of the facts above.
Show supporting computations in good form. Your submission must show all calculations used to arrive at the answers.

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