Question

Presented below is information related to copyrights owned by Sunland Company at December 31, 2020. Cost Carrying amount Expected future net cash flows Fair value $8,520,000 4,470,000 4,020,000 3,450,000 Assume that Sunland Company will continue to use this copyright in the future. As of December 31, 2020, the copyright is estimated to have a remaining useful life of 10 years. Prepare the journal entry to record the impairment of the asset at December 31, 2020. The company does not use accumulated amortization accounts. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit List of Accounts

Answer 1

Test for Impairment Asset is to impaired if its Carrying Value < Future Cash-Inflows in this case, $ A. Carrying Value 44,70,000 $ B. Future Cash-Infows 40,20,000 As the A<B, Copyrights will be Impaired, and Impairment Loss will be calculated Carrying Value - Fair Value $4020000 $3450000 Impairment Loss 5,70,000 Date Account Titles Debit Credit 31-12-20 Impairment Loss $5,70,000.00 Intangible Assets - Patents (To record the loss on Impairment) $5,70,000.00 31-12-21 Amortization Expense $3,45,000.00 Intangible Assets - Patents (To record the amortization expense -2021) $3,45,000.00 31-12-21 Intangible Assets - Patents $3,35,000.00 $3,35,000.00 Revaluation Reserve (To record the upward revaluation of copyright) Working: Value of Copyright on 31-12-20 $34,50,000 $3,45,000 Less: Amortisation for 2021 ($3450000/10) A) Value of Copyright on 31-12-21 31,05,000 $34,40,000 $3,35,000 B) Fair Value on 31-12-21 Upward Revaluation of Copyrights

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