Chapter 12 Group Work - Texas Tech University
Chapter 12 Group Work
1. River Inc. has offered to purchase Ponds Unlimited for a price of $580,000. The Balance Sheet of Ponds Unlimited at the time of the purchase is as follows:
Cash 48,000
Receivables 84,000
Inventory 220,000
Equipment 90,000
Copyright 16,000
Total Assets 458,000
Accts Payable 66,000
The account balances on the Balance Sheet approximate Fair Market Values except for Inventory [which has a FMV $315,000] and the Copyright [which has a FMV $35,000]. Prepare the journal entry that River Inc. would record at the time of the purchase.
DR CR
Cash 48,000
Accounts Receivable 84,000
Inventory 315,000
Equipment 90,000
Copyright 35,000
Goodwill 74,000
Accounts Payable 66,000
Cash 580,000
2. Assume River Inc. offered to purchase Ponds Unlimited for a price of $450,000. How would you record what appears to be “Negative Goodwill”? Prepare the journal entry for River Inc.
DR CR
Cash 48,000
Accounts Receivable 84,000
Inventory 315,000
Equipment 90,000
Copyright 35,000
Accounts Payable 66,000
Cash 450,000
Gain on Purchase 56,000
3. The following information is available for Carter Company’s Patent:
Cost $850,000
Carrying Amount $520,000
Expected Future Net Cash Flows $490,000
Fair Value $375,000
Prepare a journal entry to record the Impairment Loss for the value of Carter Company’s Patent.
Loss on Impairment 145,000
Patent 145,000
4. On October 1, 2018, Braxton Co. purchased a Patent for $90,000. Additional legal costs incurred to obtain the patent were $33,750. The Patent has a remaining legal life of 19 years, but the company expects a useful life of 15 years. What amount of amortization expense would Braxton Co. recognize for the year 2018 on the Patent asset? [Round answer to nearest dollar – ex) $42.51 = $43]
($90,000 + $33,750) = $8,250 * 3/12 = $2,063
15
Amortization Expense $2,063
Accumulated Amortization $2,063
5. Match Box Inc. purchased a patent on January 1, 2014 for $170,000. The patent had a remaining useful life of 8 years at that date. In January of 2018, Match Box Inc successfully defended its patent in court at a cost of $65,000, extending the patent’s life to 16 years.
a. What would be the amount of amortization expense Match Box Inc would record in 2018?
b. Prepare the journal entry to record 2018 amortization on the Patent.
$170,000 = $21,250 * 4 yrs = $85,000
8 yrs
($170,000 - $85,000 + $65,000) = $12,500 Amortization Exp.for 2010 and each yr beyond
12 yrs
Amortization Expense $12,500
Accumulated Amortization $12,500
6. During 2016, Coleman Company acquired Monet Company for $950,000, of which $110,000 was allocated to Goodwill. At the end of 2018, Coleman company tested for the possible impairment of Goodwill and provided the following information:
Fair Value of Monte $840,000
Fair Value of Monte’s net Assets [excluding Goodwill] $790,000
Book Value of Net Assets [including Goodwill] $885,000
What, if any, is the impairment loss suffered on the value of Goodwill for Coleman Co.’s newly acquired business?
FV - $840,000 is less than BV - $885,000 -- So there is an impairment loss.
FV of Monte [with Goodwill] $840,000
Less: FV of Monet [without Goodwill] ($790,000)
Equals: Implied Value of Goodwill $50,000
Carrying Value of Goodwill $110,000
Less: Implied Value of Goodwill ($ 50,000)
Equals: Goodwill Impairment Loss 60,000
DR CR
Loss on impairment of Goodwill 60,000
Goodwill 60,000
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