BRIEF EXERCISES
BE12-1 (L01,2) Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2017, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10 years. Prepare Taylor Swift’s journal entries to record the purchase of the patent and 2017 amortization.
BE12-2 (L01,2) Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift’s books is $43,200. In January, Taylor Swift spends $24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.
BE12-3 (L01,2) Stephan Curry, Inc., spent $68,000 in attorney fees while developing the trade name of its new product, the Mean
BEan Machine. Prepare the journal entries to record the $68,000 expenditure and the first year’s amortization, using an 8-year life.
BE12-4 (L01,2) Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $120,000 on April 1, 2017. The franchise grants Gershwin the right to sell certain products and services for a period of 8 years. Prepare
Gershwin’s April 1 journal entry and December 31 adjusting entry.
BE12-5 (L03) On September 1, 2017, Winans Corporation acquired Aumont Enterprises for a cash payment of $700,000. At the time of purchase, Aumont’s balance sheet showed assets of $620,000, liabilities of $200,000, and owners’ equity of $420,000.
The fair value of Aumont’s assets is estimated to be $800,000. Compute the amount of goodwill acquired by Winans.
BE12-6 (L04) Kenoly Corporation owns a patent that has a carrying amount of $300,000. Kenoly expects future net cash flows from this patent to total $210,000. The fair value of the patent is $110,000. Prepare Kenoly’s journal entry, if necessary, to record the loss on impairment.
BE12-7 (L04) Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of $400,000.
The Johnson Division’s net assets, including the goodwill, have a carrying amount of $800,000. The fair value of the division is estimated to be $1,000,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.
BE12-8 (L04) Use the information provided in BE12-7. Assume that the fair value of the division is estimated to be $750,000 and the implied goodwill is $350,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.
BE12-9 (L01,2,5) Nieland Industries had one patent recorded on its books as of January 1, 2017. This patent had a book value of $288,000 and a remaining useful life of 8 years. During 2017, Nieland incurred research and development costs of $96,000 and brought a patent infringement suit against a competitor. On December 1, 2017, Nieland received the good news that its patent was valid and that its competitor could not use the process Nieland had patented. The company incurred $85,000 to defend this patent. At what amount should patent(s) be reported on the December 31, 2017, balance sheet, assuming monthly amortization of patents?
BE12-10 (L01,2,5) Sinise Industries acquired two copyrights during 2017. One copyright related to a textbook that was developed internally at a cost of $9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2017, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2017, for $24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise’s balance sheet as of December 31, 2017?
BE12-11 (L05) R. Wilson Corporation commenced operations in early 2017. The corporation incurred $60,000 of costs such as fees to underwriters, legal fees, state fees, and promotional expenditures during its formation. Prepare journal entries to record the $60,000 expenditure and 2017 amortization, if any.
BE12-12 (L05) Treasure Land Corporation incurred the following costs in 2017.
Cost of laboratory research aimed at discovery of new knowledge $120,000
Cost of testing in search for product alternatives 100,000
Cost of engineering activity required to advance the design of a product to the manufacturing stage 210,000 $430,000
Prepare the necessary 2017 journal entry or entries for Treasure Land.
BE12-13 (L05) Indicate whether the following items are capitalized or expensed in the current year.
(a) Purchase cost of a patent from a competitor. (c) Organizational costs.
(b) Research and development costs. (d) Costs incurred internally to create goodwill.
