Question

20.000 $107.000 Red earnings Investigation shows that R&D not yet operating at ca 40.000 50.000 stigation shows that costs include, among others SR000 of operating costs because the ct operating a y in addition, R&D costs includ55.000 of materials that were wat uction because our employees made some unnecessary mistakes. 12.000 entries for production becau Required: Prepare the fina are the financial statements according to GAAP recorded 999 Intangibles p any was formed in January 2017 and is preparing its financial statement me at the end ot 2019. Its general ledger at December 31, 2019. indude $120,000 140,000 150,000 90,000 30,000 150,000 90,000 C pyright de name puter software up costs actual capital • stems, cently red accountant for Balley, you have been asked to make sure that the company ble assets follows GAAL Based on your investigation, you determine the following The patent acquired in January 2019 has an expected life of 15 years and no residual value, and it will genere approximately equal benefits each year. Bailey will use the copyright and trade name for the foreseeable future The computer software was purchased in January 2019 and is used in the Bailey's 20 ottices around the con try. It is expected to be replaced with new software at the beginning of 2021 Bailey previously capitalized the expected value of its "human resources as intellectual capital, with a come sponding increase in additional paid in capital. The trade name and goodwill arose from an acquisition of a subsidiary company at the end of 2018. Because of a significant adverse change in the market, you decide that both assets are impaired. You estimate that the fair value of the trade name is $50,000. The subsidiary company, which qualifies as a reporting unit, has book value of $500,000, including the goodwill of $90,000. You estimate that the subsidiary's fair values This $430,000 Required: Assume no adjusting entries have been made. Prepare journal entries to provide the correct information under GAAP at the end of 2019. cors ing P12-6 Impairment Wember Company acquired a subsidiary company on December 31, 2015, and recorded the cost of 121 the intangible assets it acquired as follows: LO 12.4 10 12.5 Patent $100,000 80.000 TI

Answer 1

answer

1. to record the amortization of patent

amortization expense = cost of intangible / expected useful life

$120,000 / 15 = $8000

since patent amortization is an expense account, it will be increased by $8000 while the the asset (patent) will be credited with the same amount

thus the journal entry would be

dec 31 amortization expense- patent(1) account debit $8000

to patent account $8000

2. amortization of computer

90,000 / 2 = $45000

dec 31 amortization expense - computer (2) debit $45000

to computer account $45000

3. to eliminate start up cost

start up cost is a part of retained earnings spending

2019 retained earning debit $30,000

to start up cost $30,000

as retained earnings are reduced

4. to record the impairment of trade name and goodwill

loss on impairment of goodwill (500,000 - 430,000) = $70,000

loss on impairment of trade name 150,000 - 50,000 = $100,000 carrying value - fair value

journal entry

2019 loss of impairment account debit $170,000

to goodwill account $70,000

to trade name account $100,000