Question
On January 1, 2006, Enterprise Inc. bought two trademarks; trademark A cost $50,000 and trademark B cost $60,000. Acquisition costs were $5,000 for A and
On January 1, 2006, Enterprise Inc. bought two trademarks; trademark A cost $50,000 and trademark B cost $60,000. Acquisition costs were $5,000 for A and $6,000 for B. It was determined that A had a useful life of only 10 years because of expected shifts in fashion (and have no value after that time), but B was expected to generate cash flows indefinitely.
Also, on January 1, 2007, Enterprise had purchased a small computing firm, HollowDeck Computers, for $100,000 in cash. At that date, HollowDeck had net identifiable assets with a fair value of $80,000.
On December 31, 2007, two members of Enterprises board of directors disagreed over whether trademarks A and B had suffered impairment and should be written down. Mr. Spock noted that A was expected to generate total future net cash flows of only $45,000, and had a market value of just $40,000. Spock also noted that B was still expected to generate cash over an indefinite period, but that B had a fair value of $60,000. Mr. McCoy countered that the present value of the As cash flows was $42,000, and that the potentially infinite cash flows expected for B precluded any consideration of writedown.
Also on December 31, HollowDecks software engineers reported a setback in the development of their main project, a virtual reality program for individuals with limited social skills. The carrying value of HollowDecks net assets, not including any goodwill, was $45,000, and the fair value of HollowDeck as a whole was estimated at $60,000. The fair value of net assets, without goodwill, was $50,000.
please show calculations as well as journal entries, thank you!
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