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Chapter 12: 7BE (page 610)

Zoop Corporation purchased for \(300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year, Murphy earned net income of \)180,000 and paid dividends of $60,000. Prepare Zoop鈥檚 journal entries related to this investment.

Short Answer

Expert verified

a) The amount debited to investment is $300,000.

b) The amount of dividend received is $18,000.

c) The unrealized gain on the investment is $54,000.

Step by step solution

01

Step-by-Step Solution Step 1: Definition of Investment

Investment means the excess amount used for saving in future

02

 Journal entry of the purchase of the investment

Date

Description

Debit

Credit

A.

Investment

$300,000

Cash

$300,000

Being entry to record the purchase of common stock

03

Journal entry for the dividend  received

Date

Description

Debit

Credit

B

Cash

$18,000

Dividends

$18,000

Being entry of dividend received

04

Adjustment entry for a share in net income

Date

Description

Debit

Credit

C

Investment

$54,000

Share of equity method in earnings

$54,000

Being fair value adjustment common stock

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Most popular questions from this chapter

Use the information provided in IFRS12-8. Assume that the recoverable amount of the division is estimated to be \(750,000. Prepare Waters鈥� journal entry, if necessary, to record an impairment of the goodwill.

Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of \)400,000. The Johnson Division鈥檚 net assets, including the goodwill, have a carrying amount of \(800,000. The recoverable amount of the division is estimated to be \)1,000,000. Prepare Waters鈥� journal entry, if necessary, to record impairment of the goodwill.

What is the GAAP definition of fair value?

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.

Explain the difference between artistic-related intangible assets and contract-related intangible assets.

Question: (Accounting for Franchise, Patents, and Trademark) Information concerning Sandro Corporation鈥檚 intangible assets is as follows.

  1. On January 1, 2017, Sandro signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of \(75,000. Of this amount, \)15,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of \(15,000 each, beginning January 1, 2018. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2017, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is \)43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Sandro鈥檚 revenue from the franchise for 2017 was \(900,000. Sandro estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.)
  2. Sandro incurred \)65,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2017. Legal fees and other costs associated with registration of the patent totaled \(17,600. Sandro estimates that the useful life of the patent will be 8 years.
  3. A trademark was purchased from Shanghai Company for \)36,000 on July 1, 2014. Expenditures for successful litigation in defense of the trademark totaling $10,200 were paid on July 1, 2017. Sandro estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Instructions

  1. Prepare a schedule showing the intangible assets section of Sandro鈥檚 balance sheet at December 31, 2017. Show supporting computations in good form.

Prepare a schedule showing all expenses resulting from the transactions that would appear on Sandro鈥檚 income statement for the year ended December 31, 2017. Show supporting computations in good form.

See all solutions

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