K12EPPTCH12 - Intangible Assets Chapter Chapter 12 12...

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Unformatted text preview: Intangible Assets Chapter Chapter 12 12 Chapter 12-1 Pre d by C Harm Unive pare oby on, rsity of C alifornia, S anta Barbara Learning Objectives 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. De scribethecharacte ristics of intangibleasse ts. Ide ntify thecosts to includein theinitial valuation of intangibleasse ts. Explain theproce durefor am ortizing intangibleasse ts. De scribethetype of intangibleasse s ts. Explain theconce ptual issue re d to goodwill. s late De scribetheaccounting proce s for re dure cording goodwill. Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Ide ntify theconce ptual issue re d to re arch and de lopm nt costs. s late se ve e De scribetheaccounting for re arch and de lopm nt and sim costs. se ve e ilar Indicatethepre ntation of intangibleasse and re d ite s. se ts late m Chapter 12-2 I ntangibleAsse ts Intangible Intangible Asset Issues Asset Characteristic s Valuation Amortization Types of Types Intangibles Intangibles Marketingrelated Customerrelated Artisticrelated Contractrelated Technologyrelated Goodwill Impairment of Impairment Intangibles Intangibles Limited-life Limited-life intangibles intangibles Indefinite-life Indefinite-life intangibles other than goodwill goodwill Goodwill Research and Research Development Costs Costs Identifying Identifying R&D R&D Accounting Accounting for R&D for Other similar Other costs costs Conceptual Conceptual questions questions Presentation of Presentation Intangibles and Related Items Related Intangible Intangible assets assets R&D costs Chapter 12-3 Intangible Asset Issues C haracte ristics Two Main C haracte ristics: (1) The lack physical e nce y xiste . (2) The arenot financial instrum nts. y e Norm classifie as long-te asse ally d rm t. C m type of intangible om on s s: Pate nts Copyrights Franchise or lice s s nse Chapter 12-4 Trade arks or tradenam s m e Goodwill LO 1 De scribethecharacte ristics of intangibleasse ts. Intangible Asset Issues Valuation Purchase I ntangible : d s Re corde at cost. d I nclude all costs ne ssary to m theintangibleasse re for its s ce ake t ady inte d use nde . Purchaseprice+ le fe s + othe ide gal e r ntical e nse xpe s Chapter 12-5 LO 2 I de ntify thecosts to includein theinitial valuation of intangibleasse ts. Intangible Asset Issues Valuation I nte rnally C ate I ntangible re d s: Ge rally e nse ne xpe d. Ex) Re arch & De lopm nt e nditure se ve e xpe Justification: - Difficult to allocateto a spe intangibleasse cific t - C rvativeaccounting onse Only capitalizedire costs incurre in de loping theintangible such as ct d ve , le costs. gal Chapter 12-6 LO 2 I de ntify thecosts to includein theinitial valuation of intangibleasse ts. Intangible Asset Issues Am ortization of I ntangible s Lim d-LifeI ntangible ite s: Am ortizeto e nse(Usually, S xpe traight-linem thod) e C dit asse account or accum re t ulate am d ortization Im pairm nt te e st How e atetheuse lifeof intangibleasse stim ful t? - Useanothe sim asse use life r ilar t’s ful - Any le re gal, gulatory, or contractual provisions - Effe of e cts conom factors ic - Thele l of m ve ainte nancee nditure xpe Chapter 12-7 LO 3 Explain theproce durefor am ortizing intangibleasse ts. Intangible Asset Issues Am ortization of I ntangible s I nde finite -Life I ntangible s: No fore e lim on tim theasse is e cte to providecash flows. se able it e t xpe d No am ortization Im pairm nt te at le annually e st ast Chapter 12-8 LO 3 Explain theproce durefor am ortizing intangibleasse ts. Intangible Asset Issues Accounting for I ntangible s I llustration 12-1 Chapter 12-9 LO 3 Explain theproce durefor am ortizing intangibleasse ts. Types of Intangibles S Major C gorie ix ate s: (1) Marke ting-re d. late (2) C ustom r-re d. e late (3) Artistic-re d. late (4) C ontract-re d. late (5) Te chnology-re d. late (6) Goodwill. Chapter 12-10 LO 4 De scribethetype of intangibleasse s ts. Types of Intangibles Marke ting-Re d I ntangibleAsse late ts Exam s are ple : trade arks or tradenam s, ne m e wspape m r asthe I nte t ads, rne dom nam s, and noncom tition agre m nts. ain e pe ee Trade ark or t radenam has le prote m e gal ction for inde finitenum r of be 10 ye re wal pe ar ne riods. C apitalizeacquisition costs. No am ortization. Chapter 12-11 LO 4 De scribethetype of intangibleasse s ts. Types of Intangibles C ustom r-Re d I ntangibleAsse e late ts Exam s are ple : custom r lists, orde or production backlogs, and both contractual e r and noncontractual custom r re e lationships. C apitalizeacquisition costs. Am ortize to e nseove use life d xpe r ful . Chapter 12-12 LO 4 De scribethetype of intangibleasse s ts. Types of Intangibles Artistic-Re d I ntangibleAsse late ts Exam s are ple : plays, lite rary works, m usical works, picture photographs, and s, vide and audiovisual m rial. o ate C opyright is grante for thelifeof thecre plus 70 ye d ator ars. C apitalizeacquisition costs. Am ortize to e nseove use life d xpe r ful . Chapter 12-13 LO 4 De scribethetype of intangibleasse s ts. Types of Intangibles C ontract-Re d I ntangibleAsse late ts Exam s are ple : franchiseand lice nsing agre m nts, construction pe its, ee rm broadcast rights, and se rviceor supply contracts. Franchise(or lice ) with a lim d lifeshould beam nse ite ortize to e nse d xpe ove thelifeof thefranchise r . Franchisewith an inde finitelifeshould becarrie at cost and not d am ortize d. Chapter 12-14 LO 4 De scribethetype of intangibleasse s ts. Types of Intangibles Te chnology-Re d I ntangibleAsse late ts Exam s are ple : pate d te nte chnology and tradese ts grante by theU.S Pate cre d . nt and Trade ark Office m . Pate give theholde e nt s r xclusiveusefor a pe of 20 ye riod ars. C apitalizecosts of purchasing a pate nt. Expe any R& D costs in de loping a pate nse ve nt. Le fe s incurre succe gal e d ssfully de nding a pate arecapitalize to fe nt d Pate account. nt Chapter 12-15 LO 4 De scribethetype of intangibleasse s ts. Types of Intangibles Goodwill Only re corde whe an e d n ntirebusine is purchase be ss d causegoodwill cannot bese parate fromthebusine as a whole d ss . Goodwill is re corde as thee ss of ... d xce purchasepriceove t heFMV of theide r ntifiablene asse t ts ove acquire . d I nte rnally cre d goodwill should not becapitalize ate d. Chapter 12-16 LO 5 Explain theconce ptual issue re d to goodwill. s late Recording Goodwill Exam : Global Corporation purchased thenet assets of Local Company for $300,000 ple on De m r 31, 2009. Thebalanceshe t of Local C pany just prior to acquisition is: ce be e om Asset s Cash Receivables I nvent ories Equipment T ot al Liabilit ies and Equit ies Account s payable Common st ock Ret ained earnings T ot al Chapter 12-17 Cost $ 15, 000 10, 000 50, 000 80, 000 $ 155, 000 $ FMV 1 5, 000 1 0, 000 7 0, 000 1 30, 000 $ 2 25, 000 $ 25, 000 100, 000 30, 000 $ 155, 000 $ 2 5, 000 FMV of Ne t Asse = ts $200,000 $200,000 $ 2 5, 000 LO 6 De scribetheaccounting proce s for re dure cording goodwill. Recording Goodwill Exam : Global Corporation purchased thenet assets of Local Company for $300,000 ple on De m r 31, 2009. Thebalanceshe t of Local C pany just prior to acquisition is: ce be e om Calculat ion of Goodwill: Book value of net asset s of Local: Asset s Liabilit ies Book value of net asset s Under (Over) valued asset or liabilit ies: I nvent ory Equipment FMV of net asset s of Local Price paid f or Local Goodwill Chapter 12-18 $ 155, 000 (25, 000) 130, 000 20, 000 50, 000 200, 000 300, 000 $ 100, 000 LO 6 De scribetheaccounting proce s for re dure cording goodwill. Recording Goodwill Exam : Global Corporation purchased thenet assets of Local Company for $300,000 ple on De m r 31, 2009. Thebalanceshe t of Local C pany just prior to acquisition is: ce be e om Book Value= $130,000 Re valuation $70,000 Fair Value= $200,000 Goodwill $100,000 PurchasePrice= $300,000 Chapter 12-19 LO 6 De scribetheaccounting proce s for re dure cording goodwill. Recording Goodwill Exam : Global Corporation purchased thenet assets of Local Company for $300,000 ple on De m r 31, 2009. Thebalanceshe t of Local C pany just prior to acquisition is: ce be e om Journal e re ntry corde by Global: d C ash Re ivable ce s I nve ntory Equipm nt e Goodwill Accounts payable C ash Chapter 12-20 15,000 10,000 70,000 130,000 100,000 25,000 300,000 LO 6 De scribetheaccounting proce s for re dure cording goodwill. Goodwill Goodwill Write -off Goodwill conside d to havean inde re finitelife . S hould not beam ortize d. Only adjust carrying valuewhe goodwill is im n paire d. Chapter 12-21 LO 6 De scribetheaccounting proce s for re dure cording goodwill. Goodwill Ne gativeGoodwill – Bargain Purchase Purchasepricele than t hefair valueof ne asse acquire ss t ts d (bargain purchase ). Re sults in a cre re rre to as ne dit, fe d gativegoodwill. Ne gativegoodwill m beallocate against long-te asse ust d rm ts acquire any re aining is accounte for as an e d, m d xtraordinary gain. Chapter 12-22 LO 6 De scribetheaccounting proce s for re dure cording goodwill. Impairment of Intangible Assets Im pairm nt of Lim d-LifeI ntangible e ite s S eas im am pairm nt for long-live asse in C e d ts hapte 11. r 1. I f thesumof thee cte futurene cash flows is le than t hecarrying xpe d t ss am ount of theasse an im t, pairm nt has occurre (re rability te ). e d cove st 2. Theim pairm nt loss is theam e ount by which thecarrying am ount of the asse e e thefair valueof theasse (fair valuete ). t xce ds t st Theloss is re porte as part of incom fromcontinuing ope d e rations, “Othe r e nse and losse se xpe s s” ction. Chapter 12-23 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets Impairment E12-14 (Copyright I mpairment) Presented below is information related to copyrights owne by Bottice C pany at De m r 31, 2010. d lli om ce be Cost Car r ying amount Ex pect ed f ut ur e net cash f lows Fair value Thecopyright has a re aining use lifeof 10 ye m ful ars. $ 8,600,000 4,300,000 4,000,000 3,400,000 (a) Pre parethejournal e (if any) to re theim ntry cord pairm nt of theasse at De m r e t ce be 31, 2010. (b) Pre parethejournal e to re am ntry cord ortization e nsefor 2011 re d to the xpe late copyrights. Chapter 12-24 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets Re rability te I f thesumof thee cte futurene cash flows is le than cove st: xpe d t ss t hecarrying am ount of theasse an im t, pairm nt has occurre e d. Expect ed f ut ur e cash f low Car r ying value $ $ 4,000,000 4,300,000 ( 300,000) Asse is I m t paire d Asse Chapter 12-25 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets (a) Pre thejournal e (if any) to re theim pare ntry cord pairm nt of theasse at e t De m r 31, 2010. ce be Loss on im pairm nt e C opyrights 900,000 900,000 Fair value t est : Car r ying amount Fair value Loss on impair ment $ $ 4,300,000 3,400,000 (900,000) Chapter 12-26 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets (b) Pre thejournal e to re am pare ntry cord ortization e nsefor 2011 re d to xpe late t hecopyrights. Am ortization e nse xpe C opyrights 340,000 340,000 Car r ying amount Usef ul lif e Amor t izat ion per year $ $ 3,400,000 10 year s 340,000 ÷ Chapter 12-27 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets Im pairm nt of I nde e finite -LifeI ntangible Othe than s r Goodwill S hould bete d for im ste pairm nt at le annually. e ast Im pairm nt te is a f air valuete . e st st I f thefair valueof asse is le than t hecarrying am t ss ount, an im pairm nt loss is re e cognize for thediffe nce d re . Re rability te is not use cove st d. Chapter 12-28 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets Im pairm nt of Goodwill – Re e porting units Two S p Proce te ss: S p 1: te I f fair valueis le than t hecarrying am ss ount of thene asse t ts (including goodwill), the pe n rforma se cond ste to de rm p te ine possibleim pairm nt. e De rm thefair valueof thegoodwill (im d valueof te ine plie goodwill) and com pareto carrying am ount. S p 2: te Chapter 12-29 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e LO Impairment of Intangible Assets Im pairm nt of Goodwill – S p 2 e te I m d valueof goodwill approach: plie FV of ne asse = FV of ne asse othe than goodwill + FV of goodwill t ts t ts r FV of goodwill = FV of ne asse – FV of ne asse othe than goodwill t ts t ts r FV of ne asse othe than goodwill t t r = C of ne asse – C of goodwill V t ts V +/- Fair valuechangein ne asse othe than goodwill t ts r Chapter 12-30 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e LO Impairment of Intangible Assets (I m d) fair valueof goodwill plie Fair valueof ne asse (re t ts porting unit) C arrying valueof ne asse t ts ( ) Le C ss: arrying valueof goodwill Add (le C ss): hangein Fair valuein othe ne asse rt ts Fair valueof goodwill Chapter 12-31 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets Impairment E12-15 (Goodwill I mpairment) Presented below is net asset information related to the Mischa Division of S antana, I nc. as of De m r 31, 2010 (in m ce be illions): Cash Receivables Pr oper t y, plant , and equipment , net Goodwill Less: Not es payable N et asset s $ $ 60 200 2,600 200 (2,700) 360 Manage e e ate its futurene cash flows fromthedivision to be$400 m m nt stim d t illion. Manage e has also re ive an offe to purchasethedivision for $335 m m nt ce d r illion. All ide ntifiableasse and liabilitie book and fair valueam ts’ s’ ounts arethesam . e Chapter 12-32 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets E12-15 I nstructions (a) Pre thejournal e (if any) to re theim pare ntry cord pairm nt at De m r 31, e ce be 2010. S p 1: Thefair valueof te t here porting unit is be low its carrying value . The fore an im re , pairm nt e has occurre d. Fair value Car r ying amount , net of goodwill I mplied goodwill Car r ying value of goodwill Loss on impair ment $ S p 2: te (in millions) $ 335 160 175 200 (25) Loss on im pairm nt e Goodwill Chapter 12-33 25,000,000 25,000,000 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets E12-15 I nstructions (b) At De m r 31, 2011, it is e ate that thedivision’s fair valueincre d ce be stim d ase t o $345 m illion. Pre parethejournal e (if any) to re this incre in ntry cord ase f air value . No e ne ssary. ntry ce Adjuste carrying am d ount of thegoodwill is its ne accounting basis. w S que re rsal of re ubse nt ve cognize im d pairm nt losse is not pe itte e s rm d unde S r FASNo. 142. Chapter 12-34 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Impairment of Intangible Assets S m of I m um ary pairm nt Te e sts Illustration 12-11 Chapter 12-35 LO 7 Explain theaccounting issue re d to intangible t im s late -asse pairm nts. e Research and Development Costs Fre ntly re que sults in som thing that a com e pany pate or copyrights nts such as: ne product, w proce ss, ide a, f orm ula, com position, or lite work. rary Be causeof difficultie re d to ide s late ntifying costs with particular activitie and de rm s te ining thefuturebe fits, all R & D costs are ne e nse whe incurre . xpe d n d Chapter 12-36 LO 8 I de ntify theconce ptual issue re d to re arch and de lopm nt costs. s late se ve e Research and Development Costs I de ntifying R & D Activitie s Re arch Activitie se s Planne se d arch or critical inve stigation aim d at discove of ne knowle . e ry w dge Illustration 12-13 Exam s ple Laboratory re arch aim d at discove of ne se e ry w knowle ; se dge arching for applications of ne w re arch findings. se Exam s ple De lopm nt Activitie ve e s Translation of re arch findings or othe se r knowle into a plan or de for a ne dge sign w product or proce or for a significant ss im prove e to an e m nt xisting product or proce whe r inte d for saleor use ss the nde . Chapter 12-37 C ptual form once ulation and de of possible sign product or proce alte ss rnative construction of s; prototype and ope s ration of pilot plants. LO 8 I de ntify theconce ptual issue re d to re arch and de lopm nt costs. s late se ve e Research and Development Costs Accounting for R & D Activitie s C Associate with R& D Activitie osts d s: Mate rials, Equipm nt, and Facilitie e s Pe rsonne l Purchase I ntangible d s C ontract S rvice es I ndire C ct osts Chapter 12-38 LO 9 De scribetheaccounting for re arch and de lopm nt and sim costs. se ve e ilar Research and Development Costs E12-1 I ndicatehow items on thelist below would generally bereported in thefinancial state e m nts. Ite m 1. 1. 2. 2. 3. 3. I nve e in a subsidiary com stm nt pany Tim rland be Tim C of e ost ngine ring activity re e quire to advance d t hede of a product to them sign anufacturing stage . stage Le pre ase paym nt e C of e ost quipm nt obtaine unde a e d r capital le . ase le C of se ost arching for applications of ne w re arch findings. se re LO 9 De scribetheaccounting for re arch and de lopm nt and sim costs. se ve e ilar LO C lassification 4. 4. 5. 6. 6. Chapter 12-39 Research and Development Costs E12-1 I ndicatehow items on thelist below would generally bereported in thefinancial state e m nts. Ite m 7. 7. 8. 8. 9. 9. 10. 10. 11. 11. 12. 12. C incurre in theform ost d ation of a corporation. corporation. Ope rating losse incurre in the s d start-up of a busine ss. of Training costs incurre in start-up of ne d w ope ration. ope Purchasecost of a franchise . Purchase Goodwill ge rate inte Goodwill ne d rnally. C of te ost sting in se arch of product alte rnative s. LO 9 De scribetheaccounting for re arch and de lopm nt and sim costs. se ve e ilar LO C lassification Chapter 12-40 Research and Development Costs E12-1 I ndicatehow items on thelist below would generally bereported in thefinancial state e m nts. Ite m 13. Goodwill acquire in thepurchase d 13. Goodwill busine ss. busine 14. C of de loping a pate ve nt. 14. ost 15. C of purchasing a pate from nt 15. ost inve ntor. inve 16. Le costs incurre in se gal d curing a 16. Le 17. Unre re costs of a succe cove d ssful 17. Unre to prote thepate ct nt. to of a C lassification an pate nt. le suit gal Chapter 12-41 LO 9 De scribetheaccounting for re arch and de lopm nt and sim costs. se ve e ilar LO Research and Development Costs E12-1 I ndicatehow items on thelist below would generally bereported in thefinancial state e m nts. Ite m 18. C of conce ptual form ulation of 18. ost product alte rnative s. product 19. C of purchasing a copyright. 19. ost 20. Re arch and de lopm nt costs. se ve e 20. Re 21. C of de loping a trade ark. ve m 21. ost 22. C of purchasing a trade ark. m 22. ost possible C lassification Chapter 12-42 LO 9 De scribetheaccounting for re arch and de lopm nt and sim costs. se ve e ilar LO Research and Development Costs Othe C S ilar to R & D C r osts im osts S tart-up costs for a ne ope w ration. I nitial ope rating losse s. Adve rtising costs. C pute softwarecosts. om r Chapter 12-43 LO 9 De scribetheaccounting for re arch and de lopm nt and sim costs. se ve e ilar Research and Development Costs Research E12-17 Computetheamount to bereported as research and development expense. $330,000 / 5 = $66,000 $330,000 C of e ost quipm nt acquire that will havealte e d rnativeuse in future s R& D proje ove thene 5 ye cts r xt ars. Mate rials consum d in R& D proje e cts C onsulting fe s paid to outside for R& D proje e rs cts Pe rsonne costs of pe l rsons involve in R& D proje d cts Indire costs re ct asonably allocableto R& D proje cts Mate rials purchase for futureR& D proje d cts R& D R& Expe nse Expe $330,000 59,000 100,000 128,000 50,000 34,000 $66,000 59,000 100,000 128,000 50,000 0 $403,000 Chapter 12-44 LO 9 De scribetheaccounting for re arch and de lopm nt and sim costs. se ve e ilar Presentations of Intangibles Balanceshe t e I ntangibleasse shown as a se ts parateite . m C ontra accounts norm not shown. ally Incom state e e m nt Re am port ortization e nseand im xpe pairm nt losse in continuing e s ope rations. Total R& D costs charge to e nsem bedisclose d xpe ust d. Chapter 12-45 LO 10 I ndicatethepre ntation of intangibleasse and re d ite s. se ts late m E12-13 On July 1, 2010, Brandon Corporation purchased Mills On Company by paying $250,000 cash and issuing a $150,000 note payable. At July1, 2010, the balance sheet of Mills Co. was as follows: of Cash $ 50,000 A/P 200,000 Cash Receivables 90,000 S/E 235,000 Receivables Inventory 100,000 Inventory Land 40,000 Land Building(net) 75,000 Building(net) Equipment(net) 70,000 Equipment(net) Trademarks 10,000 10,000 435,000 435,000 Fair value of land: 80,000 Fair value of inventory: 125,000 Chapter Fair value of trademarks: 15,000 12-46 E 12-13 12-13 Re of thepurchase– Fair valueof ne asse cord t ts: Dr. Cash 50,000 Re ivable 90,000 ce s I nve ntory 125,000 Land 80,000 Building(ne 75,000 t) Equipm nt(ne 70,000 e t) Trade arks 15,000 m Goodwill Cr. A / P Cr. Notepayable Note C ash 95,000 200,000 150,000 250,000 Goodwill = Paym nt – Fair valueof ne asse e t t = 400,000 – (505,000 – 200,000) = 95,000 Chapter 12-47 E 12-13 Trade ark am m ortization: Trade arks – use life 4 ye with re m ful : ars sidual valueof $3,000 B) Am ortization Dr. Trade ark am m ortization Expe nse 1,500 Cr. Trade arks [(15,000-3000)/4 *6/12] 1,500 m Cr. Chapter 12-48 E12-16 In 2009, the company expends $325,000 on a research In project, but by the end of 2009 it is impossible to determine whether any benefit will be derived from it determine What account should be charged for the $325,000 and What how should it be shown in the financial statements? how Chapter 12-49 E12-16 The project is completed in 2007, and a successful patent The is obtained. The R&D costs to complete the project are $110,000. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2007 total $16,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also record patent amortization in 2007. patent 1) R& D e nse xpe Dr. R & D e nse 110,000 xpe Cr. C 110,000 Cr. ash 2) Pate nts 2) Dr. Pate nts 16,000 Dr. CC r. ash 16,000 3) Am 3) ortization Dr. Pate am nt ortization e nse 3,200 xpe Dr. Cr. Pate (16,000 /5 ye nts ar) 3,200 Cr. Chapter 12-50 E12-16 In 2011, the company successfully defends the patent in In extended litigation at a cost of $47,200, thereby extending the patent life to December 31,2018. What is the proper way to account for this cost? Also record patent amortization in 2011. amortization 1) C apitalizing costs Dr. Pate nt 47,200 C Cash r. 47,200 2) Pate am nts ortization 2) 16,000 – 3,200 (Prior am ortization) + 47,200 = 60,000 16,000 Update use life 8 yrs (2011~2018) d ful : Update 60,000 / 8 = 7,500 60,000 Dr. Pate am nts ortization e nse xpe 7,500 C Cash r. 7,500 Chapter 12-51 E12-16 Additional engineering and consulting costs incurred in Additional 2011 required to advance the design of a product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably. Discuss the proper accounting treatment for this cost. proper Chapter 12-52 P12-5 (Goodwill Impairment) On July 31, 2010, Mexico Company paid $3,000,000 to acquire all On of the common stock of Conchita Incorporated, which became a division of Mexico. Mexico reported the following balance sheet at the time of acquisition. the Current Asset 800,000 C/L 600,000 Current Non C/A 2,700,000 L/L 500,000 2,700,000 S/E 2,400,000 2,400,000 3,500,000 3,500,000 3,500,000 3,500,000 Fair value of net assets of Mendota was $2,750,000 Over the next 6 months, the newly purchased division reported Over operating losses and substantial losses will be anticipated. operating At 12-31-10, Mexico reports the following information: C/A 450,000 Non C/A(including goodwill) 2,400,000 C/A C/L C/L 700,000 L/L 500,000 Chapter Fair value of reporting unit 1,850,000. PP&E has a fair value 12-53 $150,000 above the carrying value. $150,000 P 12-5 (A) Compute the amount of goodwill recognized on July 31, Compute 2010 2010 Goodwill = Purchaseprice– Fair valueof Ne Asse t t Goodwill Goodwill = 3,000,000 – 2,750,000 Goodwill = 250,000 250,000 Chapter 12-54 P 12-5 (B) Determine the impairment loss, if any, to be recorded on December 31, 2010. Im pairm nt te of goodwill : e st Im S p1. Fair valueof re te porting unit < C arrying valueof ne asse of there t t porting unit I m pairm nt of goodwill e S p2. Fair value(I m d value of goodwill < C te plie ) arrying valueof goodwill Re porte I m d pairm nt loss e Re Chapter 12-55 P 12-5 (B) Determine the impairment loss, if any, to be recorded on December 31, 2010. Im pairm nt te of goodwill : e st Im S p1. Fair valueof re te porting unit - $1,850,000 Carrying valueof re porting unit - $1,650,000 Carrying Goodwill is not im paire d Goodwill S theim top pairm nt te e st Chapter 12-56 P 12-5 (C) Assume that fair value of the Mexico Division is $1,600,000 instead of $1,850,000. Determine the impairment loss, if any, to be reported on December 31,2010 31,2010 Im pairm nt te of goodwill : e st Im S p1. Fair valueof re te porting unit - $1,600,000 C arrying valueof re porting unit - $1,650,000 Goodwill is im paire d Goodwill Moveto theS p 2 te Chapter 12-57 P 12-5 (C) Assume that fair value of the Mexico Division is $1,600,000 instead of $1,850,000. Determine the impairment loss, if any, to be reported on December 31,2010 31,2010 Im pairm nt te of goodwill : e st Im S p 2. Im d valueof goodwill: te plie Fair valueof re porting unit Fair Carrying valueof ne asse t t 1,650,000 Carrying Adjust fair valuechange s(PP& E) 150,000 Carrying valueof goodwill (250,000) (250,000) Fair (im d) valueof goodwill Fair plie Carrying valueof goodwill Chapter 12-58 $1,600,000 (1,550,000) (1,550,000) 50,000 250,000 250,000 (200,000) (200,000) Goodwill im pairm nt losse $200,000 e s P 12-5 (D) Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement the Journal e Journal ntry Dr. I m e Dr. pairm nt loss – Goodwill Cr. Goodwill Cr. 200,000 200,000 Goodwill im pairm nt loss e Othe e nse or losse r xpe s s (Part of incom fromcontinuing ope e ration) (Part Chapter 12-59 ...
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This note was uploaded on 07/11/2010 for the course ACC 5110 taught by Professor Lee during the Winter '10 term at Wayne State University.

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