acct 3311 problems ch 12

acct 3311 problems ch 12 - ACCT 3311 FALL 2007 CHAPTER 12...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Sheet1 Page 1 ACCT 3311 FALL 2007 CHAPTER 12 EXAMPLES PAGE 12-1 Accounting for Intangible Assets A. Limited life intangibles 1. Capitalize if purchased. i. Amortize over estimated economic life. ii. Test for impairment using rules in chapter 11 (recoverability test followed by fair value test). 2. Expense if internally generated. B. Indefinite life intangibles other than goodwill. 1. Capitalize if purchased. i. Do not amortize. ii. Test for impairment using fair value test. 2. Expense if internally generated. C. Goodwill 1. Capitalize if purchased. i. Do not amortize. ii. Test for impairment using two step process. 1. Compare fair value of reporting unit with its carrying value. 2. If fair value > carrying value, no impairment. 3. If fair value < carrying value, a. Compute implied value of goodwill. b. If implied value < carrying value, impairment loss. D. Research and development costs are expensed as incurred. There are special rules for the cost of developing software products to be sold to others. E. There are extensive note disclosure requirements for intangible assets and research and development costs. Example 1. On 1-1-2001, GLC Company purchased a franchise from Illinois Fried Chicken. GLC paid $20,000 down and signed a note agreeing to pay $10,000 a year on January 1 for the next 8 years (first payment 1-1-2002). The estimated life o the franchise is 15 years. A 10% interest rate would have been appropriate for this transaction. Example 2. A company spends $10 million for an electron microscope for use in its R & D division. How do we account for this expenditure? Example 3. A company purchases a business for $1,500,000. The business has identifiable assets and liabilities as follows: book value market value assets $1,000,000 $ 1,400,000 liabilities $ 400,000 $ 400,000 Required: Prepare the journal entry to record the acquisition. R ACCT 3311 FALL 2007 CHAPTER 12 EXAMPLES PAGE 12-2 Example 4. Yahoo Scientific Company spent the following amounts during 2001 and 2002: on January 5, 2002 and immediately put to productive use. Legal and registration fees of $300,000 were incurred in 2002. The patent has a legal life of 17 years and an estimated economic life of 6 years.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern