Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 12: Q25Q. (page 637)

An intangible asset with an estimated useful life of 30 years was acquired on January 1, 2007, for $540,000. On January 1, 2017, a review was made of intangible assets and their expected service lives, and it was determined that this asset had an estimated useful life of 30 more years from the date of the review. What is the amount of amortization for this intangible in 2017?

Short Answer

Expert verified

There will be two separate computations of the amount of amortization because the asset's projected useful life has changed, and the amount of amortization for this intangible asset in 2017 will be $12,000.

Step by step solution

01

Calculation

Initial asset value

$540000

Estimated years of amortization

30

Yearly Amortization(1)

$18000

Amortization from 2007 to 2016

($180000)

Asset value on January 1, 2017

$360000

Estimated years of amortization

30

Yearly Amortization(2)

$12000

Amortization 2017

$12000

02

Explanation

The useful life of the intangible asset was 30 years on January 1, 2007, and also 30 years when reviewed on January 1, 2017. So the total useful life of the intangible asset was 40 years. The asset was acquired for $540,000 on January 1, 2007.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash payment of $120,000 on April 1, 2017. The franchise grants Gershwin the right to sell certain products and services for a period of 8 years. Prepare Gershwin’s April 1 journal entry and December 31 adjusting entry.

: As a new intern for the local branch office of a national brokerage firm, you are excited to get an assignment that allows you to use your accounting expertise. Your supervisor provides you with the spreadsheet below, which contains data for the most recent quarter for three companies that the firm has been recommending to its clients as “buys.” Each of the companies’ returns on assets has outperformed their industry cohorts in the past. But, given recent challenges in their markets, there is concern that the companies may experience operating challenges and lower earnings. (All numbers in millions, except return on assets.)

A

B

C

D

E

Company

Fair Value of Company

Book Value (Net Assets)

Carrying Value of Goodwill

Return on Assets

Sprint Nextel

\(36,361

\)51,271

$30,718

3.5%

Washington Mutual

11,742

23,941

9,062

2.4

E* Trade Financial

1,639

4,104

2,035

5.6

Instructions

  1. The fair value for each of these companies is lower than the corresponding book value. What implications does this have for each company’s future prospects?
  2. To date, none of these companies has recorded goodwill impairments. Your supervisor suspects that they will need to record impairments in the near future, but he is unsure about the goodwill impairment rules. Is it likely that these companies will recognize impairments? Explain.
  3. Estimate the amount of goodwill impairment for each company and prepare the journal entry to record the impairment. For each company, you may assume that the book value less the carrying value of the goodwill approximates the fair value of the company’s net assets.
  4. Discuss the effects of your entries in part (c) on your evaluation of these companies based on the return on assets ratio.

Use the information provided in BE12-7. Assume that the fair value of the division is estimated to be \(750,000 and the implied goodwill is \)350,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

Question: Your classmate Kate believes that the equity method is applied with a strict application of the “20%” rule. Do you agree? Explain.

Explain the difference between artistic-related intangible assets and contract-related intangible assets.
See all solutions

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Read Explanation

Strategic Analysis

Read Explanation

Corporate Finance

Read Explanation

Change Management

Read Explanation

Business Case Studies

Read Explanation

Operational Management

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free