XYZ spends the following amounts in Year 1 related to R&D:

Materials for research activities 100

Service costs for research activities 200

Depreciation of equipment used for research activities 40

Materials for development activities 900

Service costs for development activities 200

Depreciation of equipment used for development activities 100

At the beginning of Year 2, the intangible asset is ready for its intended use and has a useful life of 5 years.

Show all journal entries for Years 1 and 2.

What is the carrying value of the intangible asset at 12/31/Year1? At 12/31/Year2?

In Year 3, an expert consultant is hired and it is determined that the intangible asset has a value of 3000. Show the journal entry for revaluation, if any.

In Year 1, XYZ acquires 80% of the outstanding shares of BUY-ME-CORP (BMC). XYZ pays 1200. BMCs net identifiable assets have a fair value of 900.

Show the journal entry for this acquisition using both Alternative 1 and Alternative 2.

Which method produces a higher reported amount of goodwill?

Define a CGU (Cash Generating Unit) and how it applies to goodwill impairment testing.

In the above example (XYZ acquiring BMC), assume the purchase represents one CGU. Also assume that the recoverable amount is 600. For simplicity, assume no depreciation. Assume XYZ uses Alternative 2 (fair value approach). Show the journal entry for the impairment loss.

What is the amount of goodwill that XYZ reports after this impairment?

In Year 2, assume the recoverable amount is 700. (Again assume no depreciation.) Show the journal entry.

What is the amount of goodwill that XYZ reports in Year 2?

ABC acquires 4DIV CORP, which is a company with 4 divisions, which qualify as 4 CGUs. ABC pays 1100. Details are as follows:

Fair value of net assets

Division 1 = 200

Div 2 = 300

Div 3 = 250

Div 4 = 150

Goodwill = 200

The goodwill cannot be allocated to individual divisions in a reasonable consistent way. The next year, the recoverable amounts for these divisions is as follows:

Division 1 = 180

Div 2 = 250

Div 3 = 250

Div 4 = 200

Show all journal entries.

What is the amount that is reported for goodwill after both bottom up and top down tests are performed?