Nutek, Inc., holds a patent for the Full Service ™ handi-plate, which the company described as "a patented plastic buffet plate that allows the user to hold both a plate and cup in one hand" and that "has a multitude of uses including social gatherings such as backyard barbecues, buffets, picnics, and parties of any kind." (No, we're not making this up.) Nutek also purchased a patent for $1,000,000 for "a specialty line of patented switch plate covers and outlet plate covers specifically designed to light up automatically when the power fails." Assume the switch plate patent was purchased January 1, 2013, and it is being amortized over a period of 10 years. Assume Nutek does not use an accumulated amortization account but instead charges amortization directly against the intangible asset account.
Required:
1. Describe the effects of the purchase and amortization of the switch plate patent on the 2013 balance sheet and income statement.
2. Give the journal entries to record the purchase and amortization of the switch plate patent in 2013.
3. After many months of unsuccessful attempts to manufacture the switch plate covers, Nutek determined the patent was significantly impaired and its book value on January 1, 2014, was written off. Describe the financial statement effects of accounting for the asset impairment and give the journal entry to record the impairment?