Chapter 12 Group Work
1. River Inc. has offered to purchase Ponds Unlimited for a price of $580,000. The Balance Sheet of
Ponds Unlimited at the time of the purchase is as follows:
Cash
Receivables
Inventory
Equipment
Copyright
Total Assets
Accts Payable
48,000
84,000
220,000
90,000
16,000
458,000
66,000
The account balances on the Balance Sheet approximate Fair Market Values except for Inventory
[which has a FMV $315,000] and the Copyright [which has a FMV $35,000]. Prepare the journal
entry that River Inc. would record at the time of the purchase.
DR
Cash
48,000
Accounts Receivable 84,000
Inventory
315,000
Equipment
90,000
Copyright
35,000
Goodwill
74,000
Accounts Payable
Cash
CR
66,000
580,000
2. Assume River Inc. offered to purchase Ponds Unlimited for a price of $450,000. How would you
record what appears to be “Negative Goodwill”? Prepare the journal entry for River Inc.
DR
Cash
48,000
Accounts Receivable 84,000
Inventory
315,000
Equipment
90,000
Copyright
35,000
Accounts Payable
Cash
Gain on Purchase
CR
66,000
450,000
56,000
3. The following information is available for Carter Company’s Patent:
Cost
Carrying Amount
Expected Future Net Cash Flows
Fair Value
$850,000
$520,000
$490,000
$375,000
Prepare a journal entry to record the Impairment Loss for the value of Carter Company’s Patent.
Loss on Impairment
Patent
145,000
145,000
4. On October 1, 2014, Braxton Co. purchased a Patent for $90,000. Additional legal costs incurred to
obtain the patent were $33,750. The Patent has a remaining legal life of 19 years, but the company
expects a useful life of 15 years. What amount of amortization expense would Braxton Co. recognize
for the year 2014 on the Patent asset? [Round answer to nearest dollar – ex) $42.51 = $43]
($90,000 + $33,750) = $8,250 * 3/12 = $2,063
15
Amortization Expense
$2,063
Accumulated Amortization
$2,063
5. Match Box Inc. purchased a patent on January 1, 2010 for $170,000. The patent had a remaining
useful life of 8 years at that date. In January of 2014, Match Box Inc successfully defended its patent
in court at a cost of $65,000, extending the patent’s life to 16 years.
a.
What would be the amount of amortization expense Match Box Inc would record in 2014?
b.
Prepare the journal entry to record 2014 amortization on the Patent.
$170,000 = $21,250 * 4 yrs = $85,000
8 yrs
($170,000 - $85,000 + $65,000) = $12,500 Amortization Exp.for 2010 and each yr beyond
12 yrs
Amortization Expense
$12,500
Accumulated Amortization
$12,500
6. During 2012, Coleman Company acquired Monet Company for $950,000, of which $110,000 was
allocated to Goodwill. At the end of 2014, Coleman company tested for the possible impairment of
Goodwill and provided the following information:
Fair Value of Monte
Fair Value of Monte’s net Assets [excluding Goodwill]
Book Value of Net Assets [including Goodwill]
$840,000
$790,000
$885,000
What, if any, is the impairment loss suffered on the value of Goodwill for Coleman Co.’s newly
acquired business?
FV - $840,000
is less than
BV - $885,000 -- So there is an impairment loss.
FV of Monte [with Goodwill]
Less: FV of Monet [without Goodwill]
Equals: Implied Value of Goodwill
$840,000
($790,000)
$50,000
Carrying Value of Goodwill
Less: Implied Value of Goodwill
Equals: Goodwill Impairment Loss
$110,000
($ 50,000)
60,000
DR
Loss on impairment of Goodwill
Goodwill
CR
60,000
60,000