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Chapter 12: Q19Q. (page 637)
What is the nature of research and development costs?
The costs of conducting a deliberate search for new information and turning that knowledge into new goods or processes are known as research and development costs.
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(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
Indicate how unrealized holding gains and losses should be reported for debt investments classified as trading, available-for-sale, and held-to-maturity.
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: (Goodwill, Impairment) On July 31, 2017, Mexico Company paid \(3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following balance sheet at the time of the acquisition.
Current assets | \) 800,000 | Current liabilities | \( 600,000 |
Noncurrent assets | 2,700,000 | Long-term liabilities | 500,000 |
Total assets | \)3,500,000 | Stockholders鈥� equity | 2,400,000 |
Total liabilities and stockholders鈥� equity | \(3,500,000 |
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was \)2,750,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2017, Conchita reports the following balance sheet information.
Current assets | \( 450,000 |
Noncurrent assets (including goodwill recognized in purchase) | 2,400,000 |
Current liabilities | (700,000) |
Long-term liabilities | (500,000) |
Net assets | \)1,650,000 |
It is determined that the fair value of the Conchita Division is \(1,850,000. The recorded amount for Conchita鈥檚 net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value \)150,000 above the carrying value.
Instructions
Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.
Carow Corporation purchased on January 1, 2017, as a held-to-maturity investment, \(60,000 of the 8%, 5-year bonds of Harrison, Inc. for \)65,118, which provides a 6% return. The bonds pay interest semiannually. Prepare Carow鈥檚 journal entries for (a) the purchase of the investment, and (b) the receipt of semiannual interest and premium amortization. Assume effective-interest amortization is used
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