ACC211 Brief Exercise 12

ACC211 Brief Exercise 12

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Brief Exercise 12-1

Celine Dion Corporation purchases a patent from Salmon Company on January 1, 2014, for $78,790. The patent has a remaining legal life of 17 years. Celine Dion feels the patent will be useful for 10 years.

Prepare Celine Dion’s journal entries to record the purchase of the patent and 2014 amortization.  

Account Titles and Explanation	Debit	Credit
Patents	78,790
Cash		78,790
(To record purchase of patents)
Amortization Expense	7,879
Patents		7,879

Brief Exercise 12-2

Celine Dion Corporation purchases a patent from Salmon Company on January 1, 2014, for $50,300. The patent has a remaining legal life of 16 years. Celine Dion feels the patent will be useful for 10 years. Assume that at January 1, 2016, the carrying amount of the patent on Celine Dion’s books is $40,240. In January, Celine Dion spends $31,200 successfully defending a patent suit. Celine Dion still feels the patent will be useful until the end of 2023.

Prepare the journal entries to record the $31,200 expenditure and 2016 amortization

Account Titles and Explanation	Debit	Credit
Patents	31,200
Cash		31,200
(To record expenditure of patents)
Amortization Expense	8,930
Patents		8,930
(To record amortization expense)

*Brief Exercise 12-3

	Your answer is correct.

Larry Byrd, Inc., spent $89,900 in attorney fees while developing the trade name of its new product, the Mean Bean Machine.

Prepare the journal entries to record the $89,900 expenditure and the first year’s amortization, using an 10-year life

Account Titles and Explanation	Debit	Credit
Trade Names	89,900
Cash		89,900
(To record expenditure of trade names)
Amortization Expense	8,990
Trade Names		8,990
(To record amortization expense)

Brief Exercise 12-4 Your answer is correct. Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $180,000 on April 1, 2014. The franchise grants Gershwin the right to sell certain products and services for a period of 10 years. Prepare Gershwin’s April 1 journal entry and December 31 adjusting entry. Date Account Titles and Explanation Debit Credit Apr. 1 Franchises 180,000     Cash     180,000 Dec. 31 Amortization Expense 13,500     Franchises     13,500

Brief Exercise 12-5

	Your answer is correct.

On September 1, 2014, Winans Corporation acquired Aumont Enterprises for a cash payment of $702,340. At the time of purchase, Aumont’s balance sheet showed assets of $600,010, liabilities of $194,630, and owners’ equity of $405,380. The fair value of Aumont’s assets is estimated to be $817,400.

Compute the amount of goodwill acquired by Winans.

Brief Exercise 12-6 Your answer is correct. Kenoly Corporation owns a patent that has a carrying amount of $303,320. Kenoly expects future net cash flows from this patent to total $207,420. The fair value of the patent is $120,500. Prepare Kenoly’s journal entry to record the loss on impairment Account Titles and Explanation Debit Credit Loss on Impairment 182,820     Patents     182,820

Exercise 12-5

As the recently appointed auditor for William J. Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2014, are prepared. The controller for William J. 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		958,830				958,830
Jan. 5		Legal costs to obtain patent		81,840				1,040,670
Jan. 31		Payment of 7 months’ rent on property
		leased by Bryan		86,380				1,127,050
Feb. 11		Premium on common stock				230,530		896,520
March 31		Unamortized bond discount on bonds
		due March 31, 2034		86,400				982,920
April 30		Promotional expenses related to
		start-up of business		225,200				1,208,120
June 30		Operating losses for first 6 months		254,640				1,462,760

Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 10 years.

Account Titles and Explanation	Debit	Credit
Research and Development Expense	958,830
Patents	81,840
Prepaid Rent	24,680
Rent Expense	61,700
Discount on Bonds Payable	85,320
Advertising Expense	225,200
Income summary	254,640
Interest Expense	1,080
Paid-in Capital in Excess of Par - Common Stock		230,530
Intangible Assets		1,462,760
(To correct the account)
Amortization Expense	4,092
Patents		4,092

Brief Exercise 12-8

	Your answer is correct.

Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of $413,350. The Johnson Division’s net assets, including the goodwill, have a carrying amount of $815,900. The fair value of the division is estimated to be $714,750 and the implied goodwill is $312,200.

Prepare Waters’ journal entry to record impairment of the goodwill.

Account Titles and Explanation	Debit	Credit
Loss on Impairment	101,150
Goodwill		101,150

Brief Exercise 12-10

	Your answer is correct.

Treasure Land Corporation incurred the following costs in 2014.

Cost of laboratory research aimed at discovery of new knowledge		$147,850
Cost of testing in search for product alternatives		177,350
Cost of engineering activity required to advance the design of a
product to the manufacturing stage		202,710
		$527,910

Prepare the necessary 2014 journal entry or entries for Treasure Land.

Account Titles and Explanation	Debit	Credit
Research and Development Expense	527,910
Cash		527,910

Exercise 12-8

Horace Greeley Corporation was organized in 2013 and began operations at the beginning of 2014. The company is involved in interior design consulting services. The following costs were incurred prior to the start of operations. Attorney’s fees in connection with organization of the company $19,210 Purchase of drafting and design equipment 11,010 Costs of meetings of incorporators to discuss organizational activities 8,220 State filing fees to incorporate 1,040 $39,480

Your answer is correct. Compute the total amount of organization costs incurred by Greeley.

Exercise 12-13

On July 1, 2014, Brigham Corporation purchased Young Company by paying $252,800 cash and issuing a $151,720 note payable to Steve Young. At July 1, 2014, the balance sheet of Young Company was as follows. Cash $51,180 Accounts