Question
Yang Company had the following transactions related to its intangibles account. a. On January 1, 2016, Yang purchased Hollyhock Industries for $8,050,000. The book value
Yang Company had the following transactions related to its intangibles account.
a. On January 1, 2016, Yang purchased Hollyhock Industries for $8,050,000. The book value of Hollyhocks net assets was $6,200,000 and the fair value of Hollyhocks net assets was the same, except for the Building account, which was deemed to be undervalued by $120,000 and the Inventory account, which was deemed to be overvalued by $10,000.
b. In 2016, Yang finalized the development of a special hair-growth tonic. Throughout the year 2016, Yang spent $380,000 designing alternatives and putting the product through final testing and $220,000 on a machine that was used to mix the chemicals for the hair tonic. This machine cannot be used for other projects in Yangs business line. On July 1, 2016, Yang spent $155,000 in legal fees to register and secure the patent for the hair formula.
Required:
1. How much should Yang capitalize for each asset on its Balance Sheet? Ignore any depreciation or amortization costs.
2. How would Yang account for the machinery in part (b) if it had an alternative use outside of the current project?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started