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Chapter 12: Q28. (page 610)
What is meant by the term “underlying” as it relates to derivative financial instruments.
Underlying is a special rate that helps determine the price of the derivative.
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Briefly discuss how a transfer of securities from the available-for-sale category to the trading category affects stockholders’ equity and income.
Question: Treasure Land Corporation incurred the following costs in 2017.
Cost of laboratory research aimed at the discovery of new knowledge | \(120,000 |
Cost of testing in search for product alternatives | 100,000 |
Cost of engineering activity required to advance the design of a product to the manufacturing stage | 210,000 |
Prototype testing subsequent to meeting economic viability | 75,000 |
\)505,000 |
Prepare the necessary 2017 journal entry(ies) for Treasure Land.
Use the information in IFRS12-6. Assume that at the end of the year following the impairment (after recording amortization expense), the estimated recoverable amount for the patent is \(130,000. Prepare Kenoly’s journal entry, if needed.
Kenoly Corporation owns a patent that has a carrying amount of \)300,000. Kenoly expects future net cash flows from this patent to total \(210,000 over its remaining life of 10 years. The recoverable amount of the patent is \)110,000. Prepare Kenoly’s journal entry, if necessary, to record the loss on impairment.
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.
Garfield Company purchased, on January 1, 2017, as a held-to-maturity investment, \(80,000 of the 9%, 5-year bonds of Chester Corporation for \)74,086, which provides an 11% return. Prepare Garfield’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.
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