CHAPTER 12
SOLUTIONS TO B EXERCISES
E12-1B (15–20 minutes)
(a) 1, 2, 3, 5, 9, 15, 17
(b) 4. Long-term investments, or other assets, in the balance sheet.
6. Expensed in the income statement.
7. Research and development expense in the income statement.
8. Research and development expense in the income statement.
10. Research and development expense in the income statement.
11. Property, plant, and equipment in the balance sheet.
E12-2B (10–15 minutes)
The following items would be classified as intangible assets:
Cable television franchises Film contract rights
E12-2B (Continued)
The following would be classified as current assets:
Cash Notes receivable
Accounts receivable Prepaid expenses
The following would be classified as non-current assets in the property, plant,
and equipment section:
The following would be classified as an operating expense:
Research and development costs
E12-3B (10–15 minutes)
(a)
Trademarks …………………………………………………………….
$150,000
Excess of cost over fair value of net assets of
acquired subsidiary (goodwill) ………………………………
E12-3B (Continued)
Deposits with advertising agency for ads to promote goodwill of company,
$25,000, should be reported either as an expense or as prepaid advertising in
the current assets section. Advertising costs in general are expensed when
E12-4B (15–20 minutes)
1. Tartabull should report the patent at $1,280,000 (net of $720,000 accu–
mulated amortization) on the balance sheet. The computation of accumu–
2. Tartabull should amortize the franchise over its estimated useful life.
Because it is uncertain that Tartabull will be able to retain the franchise at
3. These costs should be expensed as incurred (all in 2013).
4. Because the license can be easily renewed (at nominal cost), it has an
E12-5B (15–20 minutes)
Research and Development Expense ………………………..
Patents ……………………………………………………………………
Income Summary (or a loss account) ………………………..
Interest Expense ………………………………………………..
Paid in Capital in Excess of Par on Common Stock …..
Intangible Assets …………………………..…………………..
Patents (or Accumulated Amortization) …………….
E12-6B (15–20 minutes)
Patents …………………………………………………………………..
525,000
Goodwill …………………………..…………………………………….
540,000
Franchise …………………………..…………………………………..
675,000
Copyright ……………………………………………………………….
234,000
Research and Development Expense ……………………….
322,500
Intangible Assets …………………………………………….
Amortization Expense ……………………………………………..
118,875
Patents ($525,000/8) ………………………………………..
Franchise ($675,000/10 X 6/12) ………………………..
Copyright ($234,000/5 X 5/12) ………………………….
E12-7B (10–15 minutes)
(a) 2013 amortization: $50,000 ÷ 10 = $5,000
12/31/13 book value: $50,000 – $5,000 = $45,000
2014 amortization: ($45,000 + $20,000) ÷ 9 = $7,222
12/31/14 book value: ($45,000 + $20,000 – $7,222) = $57,778
E12-8B (10–15 minutes)
(a)
Attorney’s fees in connection with organization
of the company ………………………………………………………
$26,000
Costs of meetings of incorporators to discuss
State filing fees to incorporate …………………………………..
1,000
(b)
Organization Cost Expense ……………………………………..
44,000
Cash (Payables) ………………………………………………
E12-9B (15–20 minutes)
(a) YOUNT COMPANY
Intangibles Section of Balance Sheet
December 31, 2014
amortization of $280,000 (Schedule 1) …………………………….
amortization of $96,000 (Schedule 2) ………………………………
864,000
Patent from Ford Company, net of accumulated
Schedule 1 Computation of patent from Ford Company:
Cost of patent at date of purchase …………………………………….
$1,000,000
Amortization of patent for 2013 ($1,000,000 ÷ 10 years) …………
Amortization of patent for 2014 ($900,000 ÷ 5 years) …………..
Schedule 2 Computation of franchise from Reagan Company:
Cost of franchise at date of purchase ………………………………..
Amortization of franchise for 2014 ($960,000 ÷ 10) ……………..
(b) YOUNT COMPANY
Income Statement Effect
For the year ended December 31, 2014
Patent from Ford Company:
Amortization of patent for 2014
($900,000 ÷ 5 years) ……………………………………..
Franchise from Reagan Company:
Amortization of franchise for 2014
($960,000 ÷ 10) ……………………………………………..
($5,000,000 X 5%) …………………………………………
Research and development costs ……………………………..
E12-10B (15–20 minutes)
(a)
2010
Research and Development Expense ……………………….
510,000
Cash ………………………………………………………………
510,000
Patents ……………………………………………………….………….
Cash ………………………………………………………………
Patent Amortization Expense …………………………………..
Patents [($54,000 ÷ 10) X 3/12] …………………………
Patent Amortization Expense …………………………………..
Patents ($54,000 ÷ 10) ……………………………………..
(b)
2012
Patents ……………………………………………………….………….
28,440
Cash ………………………………………………………………
28,440
Patent Amortization Expense …………………………………..
5,820
Patents ($2,250 + $3,570) …………………………………
5,820
[Jan. 1—June 1: ($54,000 ÷ 10)
X 5/12 = $2,250
$5,400 – $2,250 + $28,440) = $73,440;
($73,440 ÷ 12) X 7/12 = $3,570]
2013
Patent Amortization Expense …………………………………..
6,120
Patents ($73,440 ÷ 12) ……………………………………..
6,120
(c)
2014 and 2015
Patent Amortization Expense …………………………………..
31,875
Patents ($63,750 ÷ 2) …………………………..…………..
31,875
($73,440 – $3,570 – $6,120) = $63,750
E12-11B (20–25 minutes)
(a)
Patent A
Life in years ………………………………………….
20
Life in months (12 X 20) …………………………
240
Amortization per month …………………………
Number of months amortized to date
Book value 12/31/14: $38,800 ($48,000 – [46 X $200])
Patent B
Life in years ………………………………………….
10
Life in months (12 X 10) …………………………
120
Amortization per month …………………………
Number of months amortized to date
E12-11B (Continued)
Patent C
Life in years ……………………………………………
8
Life in months (12 X 8) …………………………….
96
Amortization per month …………………………..
Number of months amortized to date
Book value 12/31/14: $14,000 ($16,800 – [$175 X 16])
At December 31, 2014
Patent A ……………………………………………
$38,800
Patent B ……………………………………………
14,400
Patent C ……………………………………………
14,000
Total …………………………..………………..
$67,200
(b) Analysis of 2015 transactions:
1. The $347,000 incurred for research and development should be
expensed.
2. The book value of Patent B is $14,400 and its estimated future cash
E12-11B (Continued)
At December 31, 2015:
Patent A
$36,400
($38,800 – [12 X $200])
Patent B
(Present value of future cash flows)
Patent C
($14,000 – [12 X $175])
Patent D
($10,800 – $450*)
Patent D amortization:
Life in years
12
Amortization per month
$75 X 6 = $450
E12-12B (15 minutes)
Net assets of Ruth as reported …………………………...
$540,000
Adjustments to fair value ……………………………………
Increase in land value ………………………………..
$72,000
Decrease in equipment value ……………………..
60,000
Net assets of Ruth at fair value …………………………..
Selling price ………………………………………………………
The journal entry to record this transaction is as follows:
Cash ………………………………………………………………….
240,000
Land…………………………………………………………………..
240,000
Equipment ………………………………………………………….
408,000
Copyright …………………………………………………………..
Goodwill …………………………..………………………………..
240,000
Accounts Payable ………………………………………
Long-term Notes Payable …………………………...
Cash ………………………………………………………….
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Exercise B Solutions (For Instructor Use Only) 12–11
E12-13B (10–15 minutes)
(a)
Cash ………………………………………………………………………
37,500
Receivables …………………………………………………………….
67,500
Inventory ………………………………………………………………..
93,750
(b)
Amortization Expense (Copyrights) ………………………….
1,125
Copyrights ([$11,250 – $2,250] 1/4 X 6/12) ……………..
E12-14B (15–20 minutes)
(a)
December 31, 2014
Loss on Impairment …………………………………..
2,470,000*
Copyrights ………………………………………..
*Carrying amount
Land ……………………………………………………………………….
45,000
Buildings …………………………..……………………………………
56,250
Equipment ………………………………………………………………
52,500
Copyrights ……………………………………………………………..
11,250
Goodwill …………………………………………………………………
48,750
Accounts Payable …………………………………………..
Notes Payable …………………………………………………
Cash ………………………………………………………………
E12-14B (Continued)
(b)
Copyright Amortization Expense ………………..
385,000*
Copyrights ………………………………………..
385,000
*New carrying amount
Useful life
÷ 10 years
E12-15B (15–20 minutes)
(a)
December 31, 2014
Loss on Impairment ………………………………
12,000,000
Goodwill ……………………………………….
12,000,000
Fair value of division …………………………………………….
Carrying amount of division, net of goodwill …………..
Implied value of goodwill ……………………………………….
Carrying value of goodwill …………………………………….
The fair value of the reporting unit is below its carrying value. Therefore,
(b) No entry necessary. After a goodwill impairment loss is recognized, the
adjusted carrying amount of the goodwill is its new accounting basis.
E12-16B (15–20 minutes)
(a) The $183,000 is a research and development cost that should be
(b)
Research and Development Expense ……………………….
211,000
Cash, Accts. Payable, etc. ……………………………….
211,000
(To record research and
development costs)
Patents ……………………………………………………….………….
12,000
(To record legal and administrative
costs incurred to obtain patent )
Patent Amortization Expense …………………………………..
Patents …………………………………………………………..
[To record one year’s amortization
(c)
Patents ……………………………………………………….………….
18,600
Cash, Accts. Payable, etc. ……………………………….
18,600
(To record legal cost of successfully
defending patent)
Patent Amortization Expense …………………………………..
Patents …………………………………………………………..
Expense:
$12,000 – $2,000 = $10,000;
$18,600 ÷ 5 =
E12-16B (Continued)
(d) Additional engineering and consulting costs required to advance the
E12-17B (10–12 minutes)
Depreciation of equipment acquired that will have alternate
uses in future research and development projects over
the next 5 years ($300,000 ÷ 5) ……………………………………………
$ 60,000
Materials consumed in research and development projects ……
Consulting fees paid to outsiders for research and
development projects ………………………………………………………..
Personnel costs of persons involved in research and
development projects ………………………………………………………..
Indirect costs reasonably allocable to research and
development projects ………………………………………………………..
Total to be expensed in 2014 for research and
*E12-18B (10–15 minutes)
(a) Companies are required to use the greater of (1) the ratio of current
(b)
Percent-of–revenue approach:
$4,000,000
X $7,200,000 = $1,200,000
$24,000,000
*E12-19B (15–20 minutes)
(a)
Research and Development Expense ……………………….
5,000,000
Cash …………………………………………………………………
5,000,000
Computer Software Costs
($8,600,000 – $5,000,000) ………………………………………
Cash …………………………………………………………………
(b)
Amortization Expense* …………………………………………….
900,000
Computer Software Costs ………………………………….
900,000
*Percent of revenue, $3,500,000 / $35,000,000 = 10%; 10% X $3,600,000 =
(d) Extel Computing, Inc. Enterprises should disclose in its December 31, 2015,
financial statements the unamortized computer software costs included in
(e) The accounting guidance in this area applies only to the development of
computer software that is to be sold, leased, or otherwise marketed to