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Chapter 12: Q12-8BE (page 638)

Use the information provided in BE12-7. Assume that the fair value of the division is estimated to be \(750,000 and the implied goodwill is \)350,000. Prepare Waters鈥� journal entry, if necessary, to record impairment of the goodwill.

Short Answer

Expert verified

Debited loss on Impairment by $50,000 and credited Goodwill by $50,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Calculation

LossonImpairment=RecordedAmount-ImpliedAmount=$400,000-$350,000=$50,000

The reporting unit鈥檚 fair value ($750,000) is less than its carrying value ($800,000), indicating an impairment. The loss is the difference between the $400,000 in recorded goodwill and the $350,000 in implied goodwill.

02

Journal Entry

Date

Particulars

Debit

Credit

Loss on Impairment ($400,000 - $350,000)

$50,000

Goodwill

$50,000

(Being loss on impairment is recorded)

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Most popular questions from this chapter

What are the two main characteristics of intangible assets?

The following is a list of items that could be included in the intangible assets section of the balance sheet.

1. Investment in a subsidiary company.

2. Timberland.

3. Cost of engineering activity required to advance the design of a product to the manufacturing stage.

4. Lease prepayment (6 months鈥� rent paid in advance).

5. Cost of equipment obtained.

6. Cost of searching for applications of new research findings.

7. Costs incurred in the formation of a corporation.

8. Operating losses incurred in the start-up of a business.

9. Training costs incurred in start-up of new operation.

10. Purchase cost of a franchise.

11. Goodwill generated internally.

12. Cost of testing in search for product alternatives.

13. Goodwill acquired in the purchase of a business.

14. Cost of developing a patent.

15. Cost of purchasing a patent from an inventor.

16. Legal costs incurred in securing a patent.

17. Unrecovered costs of a successful legal suit to protect the patent.

18. Cost of conceptual formulation of possible product alternatives.

19. Cost of purchasing a copyright.

20. Research and development costs.

21. Long-term receivables.

22. Cost of developing a trademark.

23. Cost of purchasing a trademark.

Instructions:

(a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet.

(b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements.

Research and development activities may include (a) personnel costs, (b) materials and equipment costs, and (c) indirect costs. What is the recommended accounting treatment for these three types of R&D costs?

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.

What is the fair value option?
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