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Chapter 12: Q32. (page 610)
Why might a company become involved in an interest rate swap contract to receive fixed interest payments and pay variable?
A company might enter into the contract of the interest rate swap contract to set off the fixed payment of the debt obligation against the fixed payment swap.
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On January 1, 2017, Dagwood Company purchased at par 6%
bonds having a maturity value of $300,000. They are dated January 1, 2017, and mature January 1, 2022, with interest received
on January 1 of each year. The bonds are classified in the held-to-maturity category.
Instructions
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entry to record the interest revenue on December 31, 2017.
(c) Prepare the journal entry to record the interest received on January 1, 2018.
Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2017, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10 years. Prepare Taylor Swift鈥檚 journal entries to record the purchase of the patent and 2017 amortization.
Use the information from BE17-1 but assume the bonds are purchased as an available-for-sale security. Prepare Garfield鈥檚 journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $75,500.
Question: (Accounting for Patents) During 2013, Winston Corporation spent \(170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2013, and had a legal life of 20 years and a useful life of 10 years. Legal costs of \)18,000 related to the patent were incurred as of October 1, 2013.
Instructions
(a) Prepare all journal entries required in 2013 and 2014 as a result of the transactions above.
(b) On June 1, 2015, Winston spent $9,480 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2015. Prepare all journal entries required in 2015 and 2016.
(c) In 2017, Winston determined that a competitor鈥檚 product would make the New Age Piano obsolete and the patent worthless by December 31, 2018. Prepare all journal entries required in 2017 and 2018.
Question: (Recording and Amortization of Intangibles) Marshall Company, organized in 2016, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2017.
1/2/17 | Purchased patent (8-year life) | \( 350,000 |
4/1/17 | Purchase goodwill (indefinite life) | 360,000 |
7/1/17 | Purchased franchise with 10-year life; expiration date 7/1/27 | 450,000 |
8/1/17 | Payment of copyright (5-year life) | 156,000 |
9/1/17 | Research and development costs | 215,000 |
\)1,531,000 |
Instructions
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2017, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)
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