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Chapter 12: 16Q (page 610)
What constitutes 鈥渟ignificant influence鈥� when an investor鈥檚 financial interest is below the 50% level?
Significant influence constitutes that the investor participates in management, participation in the process of making policy, etc.
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Stave Company invests \(10,000,000 in 5% fixed rate corporate bonds on January 1, 2017. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now \)10,600,000. Interest is paid on January 1. Prepare journal entries for Stave Company to (a) record the transactions related to these bonds in 2017, assuming Stave does not elect the fair option; and (b) record the transactions related to these bonds in 2017, assuming that Stave Company elects the fair value option to account for these bond.
In 2016, Austin Powers Corporation developed a new product that will be marketed in 2017. In connection with the development of this product, the following costs were incurred in 2016: research and development costs \(400,000, materials and supplies consumed \)60,000, and compensation paid to research consultants $125,000. It is anticipated that these costs will be recovered in 2019. What is the amount of research and development costs that Austin Powers should record in 2016 as a charge to expense?
Question: As the recently appointed auditor for Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2017, are prepared. The controller for Bryan Corporation mentions that only one account is kept for intangible assets. The account is shown below.
Intangible assets | ||||
Debit | Credit | Balance | ||
Jan. 4 | Research and development costs | 940,000 | 940,000 | |
Jan. 5 | Legal costs to obtain patent | 75,000 | 1,015,000 | |
Jan. 31 | Payment of 7 months鈥� rent on property leased by Bryan | 91,000 | 1,106,000 | |
Feb. 11 | Premium on common stock | 250,000 | 856,000 | |
March 31 | Unamortized bond discount on bonds due March 31, 2037 | 84,000 | 940,000 | |
April 30 | Promotional expenses related to start-up of business | 207,000 | 1,147,000 | |
June 30 | Operating losses for first 6 months | 241,000 | 1,388,000 |
Instructions
Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 10 years.
Question: (Accounting for Research and Development Costs) Czeslaw Corporation鈥檚 research and development department has an idea for a project it believes will culminate in a new product that would be very profitable for the company. Because the project will be very expensive, the department requests approval from the company鈥檚 controller, Jeff Reid.
Reid recognizes that corporate profits have been down lately and is hesitant to approve a project that will incur significant expenses that cannot be capitalized due to the requirements of the authoritative literature. He knows that if they hire an outside firm that does the work and obtains a patent for the process, Czeslaw Corporation can purchase the patent from the outside firm and record the expenditure as an asset. Reid knows that the company鈥檚 own R&D department is first-rate, and he is confident they can do the work well.
Instructions
Answer the following questions.
(Copyright Impairment) Presented below is information related to copyrights owned by Mare Company at December 31, 2017.
Cost | \(8,600,000 |
Carrying amount | 4,300,000 |
Expected future net cash flows | 4,000,000 |
Fair value | 3,200,000 |
Assume that Mare Company will continue to use this copyright in the future. As of December 31, 2017, the copyright is estimated to have a remaining useful life of 10 years.
Instructions
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