Question

Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows: A. Timber rights on a tract of land were purchased for $2,442,370 on February 22. The stand of timber is estimated at 5,957,000 board feet. During the current year, 1,013,900 board feet of timber were cut and sold. B. On December 31, the company determined that $3,385,000 of goodwill was impaired. C. Governmental and legal costs of $6,426,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 10 years. Amortization is to be for three-fourths of a year. Required: 1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items. 2. Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item. Refer to the Chart of Accounts for exact wording of account titles

Answer 1

SOLUTION

1. A. Depletion expense = (Length of timber cut and sold / Estimated stand of timber)* Purchase price of timber rights

= 1,013,900 / 5,957,000 * 2,442,370

= 415,699

B. Impairment loss on goodwill = 3,385,000

C. Amortization expenses = (Cost incurred in obtaining a patent / Estimated life of the patent)* Amortization period

= (6,426,000 / 10) * 3/4

= 481,950

2. Journal entry-

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Depletion Expense	415,699
	Accumulated Depletion		415,699
	(Entry to record depletion of the year)
2.	Loss from impaired goodwill	3,385,000
	Goodwill		3,385,000
	(Entry to record impairment loss on Goodwill)
3.	Amortization Expense - Patents	481,950
	Patents		481,950
	(Entry to record amortization of patent cost)