Chapter 12: Q25. (page 610)
What is the GAAP definition of fair value?
The GAAP definition of fair value is “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
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Joni Hyde Inc. has the following amounts reported in its general ledger at the end of the current year.
Organization costs $24,000
Trademarks 15,000
Discount on bonds payable 35,000
Deposits with advertising agency for ads to promote goodwill of company 10,000
Excess of cost over fair value of net identifiable assets of acquired subsidiary 75,000
Cost of equipment acquired for research and development projects; the equipment has an alternative future use 90,000
Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years 80,000
Instructions
(a) On the basis of the information above, compute the total amount to be reported by Hyde for intangible assets on its balance sheet at year-end.
(b) If an item is not to be included in intangible assets, explain its proper treatment for reporting purposes.
Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift’s books is \(43,200. In January, Taylor Swift spends \)24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.
Question: (Goodwill, Impairment) On July 31, 2017, Mexico Company paid \(3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following balance sheet at the time of the acquisition.
Current assets | \) 800,000 | Current liabilities | \( 600,000 |
Noncurrent assets | 2,700,000 | Long-term liabilities | 500,000 |
Total assets | \)3,500,000 | Stockholders’ equity | 2,400,000 |
Total liabilities and stockholders’ equity | \(3,500,000 |
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was \)2,750,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2017, Conchita reports the following balance sheet information.
Current assets | \( 450,000 |
Noncurrent assets (including goodwill recognized in purchase) | 2,400,000 |
Current liabilities | (700,000) |
Long-term liabilities | (500,000) |
Net assets | \)1,650,000 |
It is determined that the fair value of the Conchita Division is \(1,850,000. The recorded amount for Conchita’s net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value \)150,000 above the carrying value.
Instructions
Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.
The following information relates to Moran Co. for the year ended December 31, 2017: net income \(1,245.7 million; unrealized holding loss of \)10.9 million related to available-for-sale debt securities during the year; accumulated other comprehensive income of $57.2 million on December 31, 2016. Assuming no other changes in accumulated other comprehensive income, determine (a) other comprehensive income for 2017, (b)comprehensive income for 2017, and (c) accumulated other comprehensive income at December 31, 2017.
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.
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