Chapter 12: Question 1 (page 637)
What are the two main characteristics of intangible assets?
It is not physical, meaning it exists as a legal authority and is distinguishable from other assets.
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On January 1, 2017, Hi and Lois Company purchased 12% bonds having a maturity value of \(300,000 for \)322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Hi and Lois Company uses the effective interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.
Instructions
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare a bond amortization schedule.
(c) Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017.
(d) Prepare the journal entry to record the interestand the amortization at December 31, 2018.
What constitutes “significant influence” when an investor’s financial interest is below the 50% level?
Question: Kenoly Corporation owns a patent that has a carrying amount of \(300,000. Kenoly expects future net cash flows from this patent to total \)210,000 over its remaining life of 10 years. The recoverable amount of the patent is $110,000. Prepare Kenoly’s journal entry, if necessary, to record the loss on impairment.
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?
(Investment Classifications)For the following investments, identify whether they are:
1. Trading debt securities.
2. Available-for-sale debt securities.
3. Held-to-maturity debt securities.
4. None of the above.
Each case is independent of the other.
(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases,
which is expected next month, it will be sold.
(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30%
of its outstanding stock.
(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year.
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money
has been tight recently and they may need to be sold.
(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.
(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project
planned 10 years from now.
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