Question

Instructions Starting questions Chart of Accounts Journal Instructions 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 $3,461,120 on February 22. The stand of timber is estimated at 5,408,000 board feet. During the current year, 1,028,300 board feet of timber were cut and sold. B. On December 31, the company determined that $3,640,000 of goodwill was impaired C. Governmental and legal costs of $6,108,000 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 sides.

Answer 1

Answer -

1. Answer -

a.

Depletion cost per unit = Cost of asset / Estimated number of units

Depletion cost per unit = $3461120 / 5408000 board feet

Depletion cost per unit = $0.64 per board feet

Then,

Depletion expense = Depletion cost per unit * Number of units extracted and sold

Depletion expense = $0.64 * 1028300 board feet

Depletion expense = $658112

b.

Loss on impairment of goodwill, $3640000

c.

Amortization is to be 3/4 of year = (Government and legal cost / Estimated economic life) * 3/4

Amortization is to be 3/4 of year = ($6108000 / 10 years) * 3/4

Amortization is to be 3/4 of year = $458100

2. Answer -

	Account titles	Debit	Credit
1.	Depletion Expense	$658112
	Accumulated Depletion		$658112
	(Depletion of Timber Rights)
2.	Loss on Impairment of Goodwill	$3640000
	Goodwill		$3640000
3.	Amortization Expense-Patents	$458100
	Patents		$458100
	(Patent Amortization)