E12-1 (Classification IssuesIntangibles) Presented below is a list of items that could be included in the intangible assets section of the balance sheet.

• Investment in a subsidiary company.
• Timberland.
• Cost of engineering activity required to advance the design of a product to the manufacturing stage.
• Lease prepayment (6 months rent paid in advance).
• Cost of equipment obtained.
• Cost of searching for applications of new research findings.
• Costs incurred in the formation of a corporation.
• Operating losses incurred in the start-up of a business.
• Training costs incurred in start-up of new operation.
• Purchase cost of a franchise.
• Goodwill generated internally.
• Cost of testing in search for product alternatives.
• Goodwill acquired in the purchase of a business.
• Cost of developing a patent.
• Cost of purchasing a patent from an inventor.
• Legal costs incurred in securing a patent.
• Unrecovered costs of a successful legal suit to protect the patent.
• Cost of conceptual formulation of possible product alternatives.
• Cost of purchasing a copyright.
• Research and development costs.
• Long-term receivables.
• Cost of developing a trademark.
• Cost of purchasing a trademark.

Instructions

(a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet.

(b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements.

(Kieso 679-680)

Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file.

E12-4

(Intangible Amortization) Presented below is selected information for Alatorre Company.

1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2012. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2022. During 2014, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2014?

2. Alatorre bought a franchise from Alexander Co. on January 1, 2013, for $400,000. The carrying amount of the franchise on Alexanders books on January 1, 2013, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bid- ding at the end of 2015, it is unlikely that the franchise will be retained beyond 2022. What amount should be amortized for the year ended December 31, 2014?

3. On January 1, 2014, Alatorre incurred organization costs of $275,000. What amount of organization expense should be reported in 2014?

4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2014, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2014?

Instructions

Answer the questions asked about each of the factual situations.

(Kieso 681)

Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file.

E12-6 (Recording and Amortization of Intangibles) Rolanda Marshall Company, organized in 2013, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2014.

1/2/14	Purchased patent (8-year life)	350,000
4/1/14	Purchase goodwill (indefinite life)	360,000
7/1/14	Purchase franchise with 10 year life; exp date 7/1/14	450,000
8/1/14	Payment of copyright (5 year life)	156,000
9/1/14	Research and development costs	215,000
		1,531,000

Instructions: Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2014, recording any necessary amortiza- tion and reflecting all balances accurately as of that date. (Use straight-line amortization.)

(Kieso 681)

Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file.

E12-9 (Accounting for Patents, Franchises, and R&D) Jimmy Carter Company has provided information on intangible assets as follows.

A patent was purchased from Gerald Ford Company for $2,000,000 on January 1, 2013. Carter esti- mated the remaining useful life of the patent to be 10 years. The patent was carried in Fords accounting records at a net book value of $2,000,000 when Ford sold it to Carter.

During 2014, a franchise was purchased from Ronald Reagan Company for $480,000. In addition, 5% of revenue from the franchise must be paid to Reagan. Revenue from the franchise for 2014 was $2,500,000. Carter estimates the useful life of the franchise to be 10 years and takes a full years amortization in the year of purchase.

Carter incurred research and development costs in 2014 as follows.

Materials and equipment	142,000
Personnel	189,000
Indirect costs	102,000
	433,000

Carter estimates that these costs will be recouped by December 31, 2017. The materials and equipment purchased have no alternative uses.

On January 1, 2014, because of recent events in the field, Carter estimates that the remaining life of the patent purchased on January 1, 2013, is only 5 years from January 1, 2014.

Instructions

(a) Prepare a schedule showing the intangibles section of Carters balance sheet at December 31, 2014. Show supporting computations in good form.

(b) Prepare a schedule showing the income statement effect (related to expenses) for the year ended December 31, 2014, as a result of the facts above. Show supporting computations in good form.

(AICPA adapted)

(Kieso 682)

Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file.

E12-10 (Accounting for Patents) During 2010, George Winston Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2010, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $18,000 related to the patent were incurred as of October 1, 2010.

Instructions

(a) Prepare all journal entries required in 2010 and 2011 as a result of the transactions above. (b) On June 1, 2012, Winston spent $9,480 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2012. Prepare all journal

entries required in 2012 and 2013. (c) In 2014, Winston determined that a competitors product would make the New Age Piano obsolete

and the patent worthless by December 31, 2015. Prepare all journal entries required in 2014 and 2015.

(Kieso 682-683)

Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file.

E12-14 (Copyright Impairment) Presented below is information related to copyrights owned by Walter de la Mare Company at December 31, 2014.

Cost 8,600,000

Carrying amount 4,300,000

Expected future net cash flows 4,00,000

Fair value 3,200,000

Assume that Walter de la Mare Company will continue to use this copyright in the future. As of December 31, 2014, the copyright is estimated to have a remaining useful life of 10 years.

Instructions

(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014. The company does not use accumulated amortization accounts.

(b) Prepare the journal entry to record amortization expense for 2015 related to the copyrights. (c) The fair value of the copyright at December 31, 2

P12-5 (Goodwill, Impairment) On July 31, 2014, Mexico Company paid $3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following balance sheet at the time of the acquisition.

Current assets $800,000

Non-current assets $2,700,000

Total assets 3,500,000

Current Liabilities $600,000

Long-term liabilities $500,000

Stockholders equity $2,400,000

Total liabilities &

stockholder equity 3,500,000

It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,750,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2014, Conchita reports the following balance sheet information.

Current Assets $450,000

Non-current assets (including goodwill recognized in purchase) 2,400,000

Current Liabilities (700,000)

Long-term liabilities (500,000)

Net Assets 1,650,000

It is determined that the fair value of the Conchita Division is $1,850,000. The recorded amount for Conchitas net assets (excluding goodwill) is the same as fair value, except for property, plant, and equip- ment, which has a fair value $150,000 above the carrying value.

Instructions

(a) Compute the amount of goodwill recognized, if any, on July 31, 2014. (b) Determine the impairment loss, if any, to be recorded on December 31, 2014. (c) Assume that fair value of the Conchita Division is $1,600,000 instead of $1,850,000. Determine the

impairment loss, if any, to be recorded on December 31, 2014. (d) Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be

reported in the income statement.

(Kieso 687)

Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file.

E12-1 (Classification IssuesIntangibles) Presented below is a list of items that could be included in the intangible assets section of the balance sheet. 1. Investment in a subsidiary company. 2. Timberland. 3. Cost of engineering activity required to advance the design of a product to the manufacturing stage. 4. Lease prepayment (6 months' rent paid in advance). 5. Cost of equipment obtained. 6. Cost of searching for applications of new research findings. 7. Costs incurred in the formation of a corporation. 8. Operating losses incurred in the start-up of a business. 9. Training costs incurred in start-up of new operation. 10. Purchase cost of a franchise. 11. Goodwill generated internally. 12. Cost of testing in search for product alternatives. 13. Goodwill acquired in the purchase of a business. 14. Cost of developing a patent. 15. Cost of purchasing a patent from an inventor. 16. Legal costs incurred in securing a patent. 17. Unrecovered costs of a successful legal suit to protect the patent. 18. Cost of conceptual formulation of possible product alternatives. 19. Cost of purchasing a copyright. 20. Research and development costs. 21. Long-term receivables. 22. Cost of developing a trademark. 23. Cost of purchasing a trademark. Instructions (a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet. (b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements. (Kieso 679-680) Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file. E12-4 (Intangible Amortization) Presented below is selected information for Alatorre Company. 1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2012. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2022. During 2014, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2014? 2. Alatorre bought a franchise from Alexander Co. on January 1, 2013, for $400,000. The carrying amount of the franchise on Alexander's books on January 1, 2013, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bid- ding at the end of 2015, it is unlikely that the franchise will be retained beyond 2022. What amount should be amortized for the year ended December 31, 2014? 3. On January 1, 2014, Alatorre incurred organization costs of $275,000. What amount of organization expense should be reported in 2014? 4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2014, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2014? Instructions Answer the questions asked about each of the factual situations. (Kieso 681) Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file. E12-6 (Recording and Amortization of Intangibles) Rolanda Marshall Company, organized in 2013, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2014. 1/2/14 Purchased patent (8-year life) 350,000 4/1/14 Purchase goodwill (indefinite life) 360,000 7/1/14 Purchase franchise with 10 year life; exp date 7/1/14 450,000 8/1/14 Payment of copyright (5 year life) 156,000 9/1/14 Research and development costs 215,000 1,531,000 Instructions: Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2014, recording any necessary amortiza- tion and reflecting all balances accurately as of that date. (Use straight-line amortization.) (Kieso 681) Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file. E12-9 (Accounting for Patents, Franchises, and R&D) information on intangible assets as follows. Jimmy Carter Company has provided A patent was purchased from Gerald Ford Company for $2,000,000 on January 1, 2013. Carter esti- mated the remaining useful life of the patent to be 10 years. The patent was carried in Ford's accounting records at a net book value of $2,000,000 when Ford sold it to Carter. During 2014, a franchise was purchased from Ronald Reagan Company for $480,000. In addition, 5% of revenue from the franchise must be paid to Reagan. Revenue from the franchise for 2014 was $2,500,000. Carter estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase. Carter incurred research and development costs in 2014 as follows. Materials and equipment 142,000 Personnel 189,000 Indirect costs 102,000 433,000 Carter estimates that these costs will be recouped by December 31, 2017. The materials and equipment purchased have no alternative uses. On January 1, 2014, because of recent events in the field, Carter estimates that the remaining life of the patent purchased on January 1, 2013, is only 5 years from January 1, 2014. Instructions (a) Prepare a schedule showing the intangibles section of Carter's balance sheet at December 31, 2014. Show supporting computations in good form. (b) Prepare a schedule showing the income statement effect (related to expenses) for the year ended December 31, 2014, as a result of the facts above. Show supporting computations in good form. (AICPA adapted) (Kieso 682) Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file. E12-10 (Accounting for Patents) During 2010, George Winston Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2010, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $18,000 related to the patent were incurred as of October 1, 2010. Instructions (a) Prepare all journal entries required in 2010 and 2011 as a result of the transactions above. (b) On June 1, 2012, Winston spent $9,480 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2012. Prepare all journal entries required in 2012 and 2013. (c) In 2014, Winston determined that a competitor's product would make the New Age Piano obsolete and the patent worthless by December 31, 2015. Prepare all journal entries required in 2014 and 2015. (Kieso 682-683) Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file. E12-14 (Copyright Impairment) Presented below is information related to copyrights owned by Walter de la Mare Company at December 31, 2014. Cost 8,600,000 Carrying amount 4,300,000 Expected future net cash flows 4,00,000 Fair value 3,200,000 Assume that Walter de la Mare Company will continue to use this copyright in the future. As of December 31, 2014, the copyright is estimated to have a remaining useful life of 10 years. Instructions (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014. The company does not use accumulated amortization accounts. (b) Prepare the journal entry to record amortization expense for 2015 related to the copyrights. (c) The fair value of the copyright at December 31, 2 P12-5 (Goodwill, Impairment) On July 31, 2014, Mexico Company paid $3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following balance sheet at the time of the acquisition. Current assets $800,000 Non-current assets $2,700,000 Total assets 3,500,000 Current Liabilities $600,000 Long-term liabilities $500,000 Stockholders' equity $2,400,000 Total liabilities & stockholder equity 3,500,000 It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,750,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2014, Conchita reports the following balance sheet information. Current Assets $450,000 Non-current assets (including goodwill recognized in purchase) 2,400,000 Current Liabilities (700,000) Long-term liabilities (500,000) Net Assets 1,650,000 It is determined that the fair value of the Conchita Division is $1,850,000. The recorded amount for Conchita's net assets (excluding goodwill) is the same as fair value, except for property, plant, and equip- ment, which has a fair value $150,000 above the carrying value. Instructions (a) Compute the amount of goodwill recognized, if any, on July 31, 2014. (b) Determine the impairment loss, if any, to be recorded on December 31, 2014. (c) Assume that fair value of the Conchita Division is $1,600,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded on December 31, 2014. (d) Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement. (Kieso 687) Kieso, Donald E. Intermediate Accounting, 15th Edition, 2014 FASB Update. Wiley, 03/2013. VitalBook file