Situation E: BlackBurn Company purchased the following on January 1, 2012: • Office Equipment at a cost of $100,000 with an estimated useful life to the company of five years and a residual value of $10,000. The company uses the double-declining-balance method of depreciation for the equipment. • Factory equipment at an invoice price of $780,000 plus shipping costs of $20,000. The equipment has an estimated useful life of 100,000 hours and no residual value. The company uses the units-of-production method of depreciation for the equipment. • A patent at a cost of $450,000 with an estimated useful life of 15 years. The company uses the straight-line method of amortization for intangible assets with no residual value. Use the information above to complete the following: 1 Prepare a partial depreciation schedule for 2012, 2013, and 2014 for the following assets. Round your answers to the nearest dollar. a Office equipment. b Factory equipment. The company used the equipment for 8,000 hours in 2012; 9,000 hours in 2013; and 8,500 hours in 2014. 2 On January 1, 2014, BlackBurn altered its corporate strategy dramatically. The company sold the factory equipment for $700,000 in cash. Record the entry related to the sale of the factory equipment. 3 On January 1, 2014, when the company changed its corporate strategy, its patent had estimated future cash flows of $300,000 and a fair value of $250,000. What would the company report on the income statement (account and amount) regarding the patent on January 2, 2014? Explain your answer. Hint: You may need to research this question using Internet sources.
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