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Chapter 12: Question 4 (page 637)
Why does the accounting profession make a distinction between internally created intangibles and purchased intangibles?
Internally created intangibles would lead to subjectivity, and Purchased intangibles are capitalized since their cost can be objectively confirmed.
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Stave Company invests \(10,000,000 in 5% fixed rate corporate bonds on January 1, 2017. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now \)10,600,000. Interest is paid on January 1. Prepare journal entries for Stave Company to (a) record the transactions related to these bonds in 2017, assuming Stave does not elect the fair option; and (b) record the transactions related to these bonds in 2017, assuming that Stave Company elects the fair value option to account for these bond.
Use the information from BE17-1 but assume the bonds are purchased as an available-for-sale security. Prepare Garfield’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $75,500.
Raleigh Corp. has an investment with a carrying value (equity method) on its books of \(170,000 representing a 30% interest in Borg Company, which suffered a \)620,000 loss this year. How should Raleigh Corp. handle its proportionate share of Borg’s loss?
Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock for \(13,200 (Fairbanks does not have significant influence). During the year, Sherman paid a cash dividend of \)3.25 per share. At year-end, Sherman stock was selling for $34.50 per share. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustmentaccount.)
What is the nature of research and development costs?
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