P12-8 (continued)
1. (continued)
Cost of Goods Sold [($800,000 ÷ 200,000) x
100,000] 400,000
Finished Goods Inventory 400,000
To expense the costs of production.
2011
Cash 800,000
2. The use of the term “probable” suggests that GAAP for contingencies is
relevant. A contingency is defined as “an existing condition . . . involving
uncertainty as to possible gain . . . to an enterprise that will ultimately be
P12-9
1. Income Statement
Sales revenue $40,000
Cost of sales ($20,000 + $5,000) (25,000)
Gross profit $15,000
12-22
P12-9 (continued)
1. (continued)
Balance Sheet
Cash $33,000
Inventory 24,000
2. Original financial statements
P12-10
Amortization Expense: Patent 8,000a
Accumulated Amortization: Patent 8,000
a$120,000 ÷ 15 years
12-23
P12-10 (continued)
Retained Earnings 250,000d
Research and Development 250,000
Impairment Loss on Tradename 100,000f
Tradename 100,000
Note to Instructor: The book value of the subsidiary’s identifiable net assets is
$410,000 ($500,000 – $90,000 goodwill). Since the fair value of the identifiable net
assets is $250,000, the company would recognize impairment losses on the
relevant assets of $160,000 ($250,000 – $410,000). Since it has recognized a loss
of $100,000 on the tradename, it would recognize additional losses of $60,000
on other assets that are impaired.
P12-11
1. Impairment Loss on Patent 18,000a
Patent 18,000
12-24
P12-11 (continued)
1. (continued)
Impairment Loss on Goodwill 70,000b
Goodwill 70,000
2. Amortization Expense: Patent 7,000c
Accumulated Amortization: Patent 7,000
12-25
P12-12
1. The balance sheet accounts need to be restated for fair values:
Assets
Cash $ 30,000
Accounts receivable (net) 70,000
Marketable securities (short-term) 60,000
2. Cash 30,000
Accounts Receivable (net) 70,000
Marketable Securities (short-term) 60,000
3. Implied goodwill
P12-12 (continued)
4. Negative goodwill proportionately reduces noncurrent assets:
Value Percent
Property, plant, and equipment $285,000 80
Journal entry to record purchase:
Cash 30,000
P12-13 (AICPA adapted solution)
1. MUNN, INC.
Schedule of Expenses Relating to Intangible Assets
For the Year Ended December 31, 2010
Amortization of intangibles
P12-13 (continued)
2. MUNN, INC.
Other Noncurrent Assets Section of Balance Sheet
December 31, 2010
Patent, net of accumulated amortization of $52,000 $140,0003
3. Explanations of Amounts:
1Amortization of patent
Patent balance, 12/31/09 ($192,000 – $24,000) $168,000
4Trademark
Cost of trademark, 1/2/10 ($800,000 x 3/4) $600,000
P12-14 (AICPA adapted solution)
1. BARB COMPANY
Intangibles Section of Balance Sheet
December 31, 2010
Schedule 1: Computation of Patent from Lou Company
Schedule 2: Computation of Franchise from Rink Company
2. BARB COMPANY
Income Statement Effect
For the Year Ended December 31, 2010
Patent from Lou Company:
P12-15 (AICPA adapted solution)
Adjusting entries (shown on worksheet):
(1) Machinery 17,000
Patents 17,000
(4) Prior Period Adjustment – Licensing
Agreement No. 1 30,000
Licensing Agreement No. 1 30,000
To write off the permanent 60% reduction in
the expected revenue-producing value of
licensing agreement no. 1 caused by the
December 2009 explosion (60% x $50,000)
(5) Cost of Goods Sold 5,000
Accumulated Amortization:
Licensing Agreements 5,000
P12-15 (continued)
(9) Cost of Goods Sold 1,500
Prior Period Adjustment – Amortization
P11-15 (continued)
LEE MANUFACTURING CORPORATION
Financial Statement Worksheet
Year Ended December 31, 2010
Trial Balance Adjustments Income Statement Balance Sheet
General Ledger Accounts Debit Credit
Debit Credit Debit Credit Debit Credit
Cash
Accounts receivable
Allowance for doubtful accounts
Inventories
Selling and general expenses
Start-up expenses
Interest expense
Extraordinary losses
$ 61,000
92,500
38,500
173,000
3,500
12,000
$ 500
(7)
(9)
(6)
(6)
(8)
$ 2,500
1,500
2,000
16,000
29,000
175,000
45,000
3,500
12,000
$ 61,000
95,000
(500)
38,500
P12-15 (continued)
12-32
P12-16 (AICPA adapted solution)
1. TULLY CORPORATION
Intangibles Section of Balance Sheet
December 31, 2010
Franchise from Rapid Copy Service, Inc., net of
accumulated amortization of $6,870 (Schedule 1) $ 61,830
Schedule 1:
Computation of Franchise from
Rapid Copy Service, Inc.
Cost of franchise at January 1, 2010
Down payment $ 25,000
Schedule 2:
Computation of Patent
12-33
P12-16 (continued)
1. (continued)
Schedule 3:
Computation of Trademark
Accumulated
Cost Amortization
2. TULLY CORPORATION
Expenses Resulting from Intangibles Transactions
For the Year Ended December 31, 2010
Franchise from Rapid Copy Service, Inc.