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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

On July 1, 2017, Wheeler Company purchased \(4,000,000 of Duggan Company’s 8% bonds, due on July 1, 2024. The bonds, which pay interest semiannually on January 1 and July 1, were purchased for \)3,500,000 to yield 10%. Determine the amount of interest revenue Wheeler should report on its income statement for the

year ended December 31, 2017.

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.

Question: R. Wilson Corporation commenced operations in early 2017. The corporation incurred \(60,000 of costs such as fees to underwriters, legal fees, state fees, and promotional expenditures during its formation. Prepare journal entries to record the \)60,000 expenditure and 2017 amortization, if any.

In examining financial statements, financial analysts often write off goodwill immediately. Comment on this procedure.

(Copyright Impairment) Presented below is information related to copyrights owned by Mare Company at December 31, 2017.

Cost

\(8,600,000

Carrying amount

4,300,000

Expected future net cash flows

4,000,000

Fair value

3,200,000

Assume that Mare Company will continue to use this copyright in the future. As of December 31, 2017, the copyright is estimated to have a remaining useful life of 10 years.

Instructions

  1. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. The company does not use accumulated amortization accounts.
  2. Prepare the journal entry to record amortization expense for 2018 related to the copyrights.
  3. The fair value of the copyright at December 31, 2018, is \)3,400,000. Prepare the journal entry (if any) necessary to record the increase in fair value.
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