Chapter 12 solutions

# Chapter 12 solutions - Chapter 12 BRIEF EXERCISE 12-1...

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Chapter 12 BRIEF EXERCISE 12-1 Patents 54,000 Cash 54,000 Patent Amortization Expense 5,400 Patents (\$54,000 X 1/10 = \$5,400) 5,400 BRIEF EXERCISE 12-2 Patents 24,000 Cash 24,000 Patent Amortization Expense 8,400 Patents [(\$43,200 + \$24,000) X 1/8 = \$8,400] 8,400 BRIEF EXERCISE 12-3 Trade Name 68,000 Cash 68,000 1

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Trade Name Amortization Expense 8,500 Trade Name (\$68,000 X 1/8 = \$8,500) 8,500 BRIEF EXERCISE 12-4 Franchise 120,000 Cash 120,000 Franchise Amortization Expense 11,250 Franchise (\$120,000 X 1/8 X 9/12 = \$11,250) 11,250 BRIEF EXERCISE 12-6 Loss on Impairment 190,000 Patents (\$300,000 – \$110,000) 190,000 Note : An impairment has occurred because expected net future cash flows (\$210,000) are less than the carrying amount (\$300,000). The loss is measured as the difference between the carrying amount and fair value (\$110,000). BRIEF EXERCISE 12-8 Loss on Impairment (\$400,000 – \$350,000) 50,000 Goodwill 50,000 2
The fair value of the reporting unit (\$750,000) is less than the carrying value (\$800,000)—an impairment has occurred. The loss is the difference between the recorded goodwill and the implied goodwill. BRIEF EXERCISE 12-10 Research and Development Expense 430,000 Cash 430,000 BRIEF EXERCISE 12-11 (a) Capitalize (b) Expense (c) Expense (d) Expense BRIEF EXERCISE 12-12 Carrying Amount Life in Months Amortization Per Month Months Amortization Patent (1/1/10) \$288,000 96 \$3,000 12 Legal costs (12/1/10) 85,000 85 \$1,000 1 \$373,000 Carrying amount \$373,000 3

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Less: Amortization of patent (12 X \$3,000) (36,000) Legal costs amortization (1 X \$1,000) (1,000 ) Carrying amount 12/31/10 \$336,000 BRIEF EXERCISE 12-13 Copyright No. 1 for \$9,900 should be expensed and therefore not reported on the balance sheet. Copyright No. 2 for \$24,000 should be capitalized. Because the useful life is indefinite, copyright No. 2 should be tested at least annually for impairment using a fair value test. It would be reflected on the December 31, 2010 balance sheet at its cost of \$24,000. *BRIEF EXERCISE 12-14 Percent of revenue approach \$800,000 X \$420,000 = \$240,000 \$1,400,000* *(\$420,000 + \$980,000) Straight-line approach \$800,000 X 1/4 = \$200,000 4
Amortization is \$240,000; percentage of revenue is greater. 5

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EXERCISE 12-5 (15–20 minutes) Research and Development Expense 940,000 Patents 75,000 Rent Expense [(5 ÷ 7) X \$91,000] 65,000 Prepaid Rent [(2 ÷ 7) X \$91,000] 26,000 Advertising Expense 207,000 Income Summary (or a loss account) 141,000 Discount on Bonds Payable 82,950* Interest Expense 1,050 Paid in Capital in Excess of Par on Common Stock 250,000 Intangible Assets 1,288,000 *84,000 ÷ 240 months = \$350; \$350 X 3 = \$1,050; \$84,000 – \$1,050 = \$82,950 Patent Amortization Expense [(\$75,000 ÷ 12) X 1/2] 3,125 Patents (or Accumulated Amortization) 3,125 6
EXERCISE 12-6 (15–20 minutes) Patents 380,000 Goodwill 360,000 Franchise 450,000 Copyright 156,000 Research and Development Expense 215,000 Intangible Assets 1,561,000 Amortization Expense 83,000

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Chapter 12 solutions - Chapter 12 BRIEF EXERCISE 12-1...

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