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Chapter 12: Q30. (page 610)
What is the purpose of a fair value hedge?
The purpose of the fair value hedge is that offset the hedged exposure with a change in the fair value of the asset.
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What is the fair value option?
Explain how losses on impaired intangible assets should be reported in income.
Question: (Accounting for Research and Development Costs) Cuevas Co. is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this new product. As of year-end (December 31, 2017), the new product has not been manufactured for resale. However, a prototype unit was built and is in operation.
Throughout 2017, the new division incurred certain costs. These costs include design and engineering studies, prototype manufacturing costs, administrative expenses (including salaries of administrative personnel), and market research costs. In addition, approximately \(900,000 in equipment (with an estimated useful life of 10 years) was purchased for use in developing and manufacturing the new product. Approximately \)315,000 of this equipment was built specifically for the design development of the new product. The remaining $585,000 of equipment was used to manufacture the pre-production prototype and will be used to manufacture the new product once it is in commercial production.
Instructions
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
Question: Sinise Industries acquired two copyrights during 2017. One copyright related to a textbook that was developed internally at a cost of \(9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2017, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2017, for \)24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise鈥檚 balance sheet as of December 31, 2017?
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