Question
Part B. Sky Corp.'s satellite division has one equipment and one patent internally generated from research-and-development. On December 1, 2018, the beginning balance of the
Part B. Sky Corp.'s satellite division has one equipment and one patent internally generated from research-and-development. On December 1, 2018, the beginning balance of the accounts related to the equipment and the patent is as follows:
Equipment (at cost)
$1,000,000
Accumulated depreciation - Equipment
$100,000
Patent (at cost)
$800,000
Accumulated amortization - Patents
$200,000
The equipment and the patent have never been impaired in the past. Annual depreciation expense for the equipment is $50,000, and annual amortization expense for the patent is $25,000. On December 31, 2018, the equipment has a Fair Value Less Cost of Disposal (FVLCD) of $900,000 and a Value-in-Use (VIU) of $800,000. The patent does not have an active market but the company has determined its VIU to be $550,000 at the end of 2018. Sky Corp. uses the cost model to for the subsequent measurement of both the equipment and the patent.
(a) Show the procedure to decide whether Sky Corp. should impair the equipment and the patent. If yes, calculate the impairment loss. (2')
(b) Please provide the journal entries related to the equipment and the patent at the end of 2018. (6')
For the year of 2019, the patent's amortization expense is $20,000. As of the end of 2019, the equipment has a FVLCD of $750,000 and a VIU of $700,000. The patent has a VIU of $560,000.
(c) Please provide the journal entries related to the equipment and the patent at the end of 2019. (8')
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