Question

E7-33A (similar to) Murley Printers incurred external costs of $700,000 for a patient for a new laser printer. Although the palent gives legal protection for 20 years, it was expected to provide Murly with a competitive advantage for only fourteen years due to expected technological advances in the industry. Murley uses the straight line method of amortization Click the icon to view additional information) Read the recitements. Requirement 2. Once Murley lowed of the competing printer and adjusted the expected ture cash flows from its original patent, was this asset impaired it so make the impairment adjusting entry (Record its first, then credits. Exclude explanations from any journal entries. For transactions that do not require an entry make sure to select No entry quired in the first cor in the "Accounts color and aveal other bank Journal Entry Credit Date Accounts Debit 500000 airment Loss on Patents 00000 and Juliansprom Preedy 1,343,092 v Choose from any list or enter any number in the input fields and then click Check Answer Check Antwer Car AB All parts showing chemontnomusic A 62 PM 2012030 Type here to search IE IR TTYTUTT Tv BNIM

Answer 1

Req. 2 Compute carrying amount of patent: Patent Cost Less: Amortization expense x 10 years Carrying value $700.000 ($500,000) $200,000 Expected future cash flows: $130,000 Patent will be impaired because carrying amount higher than expected future cash flows. Therefore, Impairment test has been done on the basis of Fair value. Carrying value Expected furure cash flows Fair value $200,000 $130,000 SO Impairment loss will be computed as follows: Carrying value Less: Fair value Impairment loss $200,000 SO $200,000

Entry as follows: Credit Account Impairment loss on patents Patents Debit $200,000 $200.000