Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 12: Q7BE. (page 638)

Question: Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of \(400,000. The Johnson Division’s net assets, including the goodwill, have a carrying amount of \)800,000. The fair value of the division is estimated to be $1,000,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

Short Answer

Expert verified

The debited amount is loss on impairment by $50,000 and credited amount is goodwill by $50,000.

Step by step solution

01

Step1- Explanation

The fair value of the reporting unit ($750,000) is less than the carrying value ($800,000)— an impairment has occurred. The loss is the difference between the recorded goodwill and the implied goodwill.

02

Step2- Journal Entry

Date

Particulars

JF

Debit

Credit

Loss on Impairment

50,000

Goodwill

50,000

(Being goodwill impairment is recorded)

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

Question: (Recording and Amortization of Intangibles) Marshall Company, organized in 2016, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2017.

1/2/17

Purchased patent (8-year life)

\( 350,000

4/1/17

Purchase goodwill (indefinite life)

360,000

7/1/17

Purchased franchise with 10-year life; expiration date 7/1/27

450,000

8/1/17

Payment of copyright (5-year life)

156,000

9/1/17

Research and development costs

215,000

\)1,531,000

Instructions

Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2017, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)

Where on the asset side of the balance sheet are debt investments classified as trading securities, available-for-sale securities, and held-to-maturity securities reported? Explain.

Izzy Inc. purchased a patent for $350,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be reliably determined. Prepare the entry to record the amortization of the patent in its first year of use.

Hillsborough Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of \(70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to \)60,000. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.

(Accounting for R&D Costs) In 2015, Wright Tool Company purchased a building site for its proposed research and development laboratory at a cost of \(60,000. Construction of the building was started in 2015. The building was completed on December 31, 2016, at a cost of \)320,000 and was placed in service on January 2, 2017. The estimated useful life of the building for depreciation purposes was 20 years. The straight-line method of depreciation was to be employed, and there was no estimated residual value.

Management estimates that about 50% of the projects of the research and development group will result in long-term benefits (i.e., at least 10 years) to the corporation. The remaining projects either benefit the current period or are abandoned before completion. A summary of the number of projects and the direct costs incurred in conjunction with the research and development activities for 2017 appears below.

Number of Projects

Salaries and Employee Benefits

Other Expenses (excluding Building Depreciation Charges)

Completed projects with long-term benefits

15

\( 90,000

\)50,000

Abandoned projects or projects that benefit the current period

10

65,000

15,000

Projects in process—results indeterminate

5

40,000

12,000

Total

30

\(195,000

\)77,000

Upon recommendation of the research and development group, Wright Tool Company acquired a patent for manufacturing rights at a cost of $88,000. The patent was acquired on April 1, 2016, and has an economic life of 10 years.

Instructions

If generally accepted accounting principles were followed, how would the items above relating to research and development activities be reported on the following financial statements?

(a) The company’s income statement for 2017.

(b) The company’s balance sheet as of December 31, 2017.

Be sure to give account titles and amounts, and briefly justify your presentation.
See all solutions

Recommended explanations on Business Studies Textbooks

Influences On Business

Read Explanation

Business Operations

Read Explanation

Business Development

Read Explanation

Nature of Business

Read Explanation

Operational Management

Read Explanation

Organizational Behavior

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