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Chapter 12: Question 2 (page 637)

If intangibles are acquired for stock, how is the cost of the intangible determined?

Short Answer

Expert verified

Suppose intangibles are purchased in exchange for stock. In that case, the cost of the intangible is the fair value of the consideration given or the fair value of the consideration received, depending upon whichever is more.

Step by step solution

01

Intangible Asset

Intangibles have two types of useful lives: limited and indefinite

02

Cost of Intangible

It is the fair value of the consideration given or the fair value of the consideration received (whichever is more).

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Most popular questions from this chapter

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.

Use the information from BE17-5 but assume the stock is nonmarketable. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment, if any.

Question: Sinise Industries acquired two copyrights during 2017. One copyright related to a textbook that was developed internally at a cost of \(9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2017, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2017, for \)24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise’s balance sheet as of December 31, 2017?

Research and development activities may include (a) personnel costs, (b) materials and equipment costs, and (c) indirect costs. What is the recommended accounting treatment for these three types of R&D costs?

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.
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