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ful economic life of 12 years was acquired for $72,000. In addition, paired. amount box does not require an entry, leave it blank. 72,000

ful economic life of 12 years was acquired for $72,000. In addition, paired. amount box does not require an entry, leave it blank. 72,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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b.  Journalize the adjusting entry on December 31 for the amortization of the patent rights. Do not round intermediate calculations. If an amount box does not require an entry, leave it blank.

### Accounting for Intangible Assets and Goodwill **Economic Scenario:** On April 1, a patent with an estimated useful economic life of 12 years was acquired for $72,000. Additionally, on December 31, it was estimated that goodwill of $35,000 was impaired. **Task:** 1. Record the acquisition of the patent. 2. Journalize the adjusting entry on December 31 for the amortization of the patent rights. 3. Journalize the adjusting entry on December 31 for the impaired goodwill. --- #### a. Recording the Acquisition of Patent **April 1 Journal Entry:** - **Debit:** Patents $72,000 - **Credit:** Cash $72,000 This entry records the acquisition of the patent on April 1. **Feedback:** Recall that goodwill is not amortized because its useful life is indefinite. --- #### b. Adjusting Entry for Amortization of Patent Rights **December 31 Journal Entry:** - **Debit:** Amortization Expense-Patents $0 - **Credit:** Patents $0 This entry is supposed to record the amortization expense incurred for the patent rights up to December 31. However, the correct amortization value has not been provided here. Usually, amortization is calculated by dividing the patent value by its useful life. **Feedback:** A separate contra asset account is usually not used for intangible assets. Pay close attention to the date of purchase. --- #### c. Adjusting Entry for Impaired Goodwill **December 31 Journal Entry:** - **Debit:** Loss from Impaired Goodwill $35,000 - **Credit:** Goodwill $35,000 This entry records the impairment loss on goodwill as of December 31, reflecting the reduction in its value. **Feedback:** This entry correctly reflects the loss due to goodwill impairment. --- ### Summary The above entries provide a guide on how to record the acquisition and subsequent adjustments for patents and goodwill within a given fiscal period. - **Key Takeaway:** - Goodwill is not amortized due to its indefinite useful life. - Amortization for other intangible assets like patents should be calculated and recorded periodically. - Impairment of goodwill should be recorded when its carrying value exceeds its fair value. These practices ensure that the financial statements accurately reflect the values of intangible assets.
Transcribed Image Text:### Accounting for Intangible Assets and Goodwill **Economic Scenario:** On April 1, a patent with an estimated useful economic life of 12 years was acquired for $72,000. Additionally, on December 31, it was estimated that goodwill of $35,000 was impaired. **Task:** 1. Record the acquisition of the patent. 2. Journalize the adjusting entry on December 31 for the amortization of the patent rights. 3. Journalize the adjusting entry on December 31 for the impaired goodwill. --- #### a. Recording the Acquisition of Patent **April 1 Journal Entry:** - **Debit:** Patents $72,000 - **Credit:** Cash $72,000 This entry records the acquisition of the patent on April 1. **Feedback:** Recall that goodwill is not amortized because its useful life is indefinite. --- #### b. Adjusting Entry for Amortization of Patent Rights **December 31 Journal Entry:** - **Debit:** Amortization Expense-Patents $0 - **Credit:** Patents $0 This entry is supposed to record the amortization expense incurred for the patent rights up to December 31. However, the correct amortization value has not been provided here. Usually, amortization is calculated by dividing the patent value by its useful life. **Feedback:** A separate contra asset account is usually not used for intangible assets. Pay close attention to the date of purchase. --- #### c. Adjusting Entry for Impaired Goodwill **December 31 Journal Entry:** - **Debit:** Loss from Impaired Goodwill $35,000 - **Credit:** Goodwill $35,000 This entry records the impairment loss on goodwill as of December 31, reflecting the reduction in its value. **Feedback:** This entry correctly reflects the loss due to goodwill impairment. --- ### Summary The above entries provide a guide on how to record the acquisition and subsequent adjustments for patents and goodwill within a given fiscal period. - **Key Takeaway:** - Goodwill is not amortized due to its indefinite useful life. - Amortization for other intangible assets like patents should be calculated and recorded periodically. - Impairment of goodwill should be recorded when its carrying value exceeds its fair value. These practices ensure that the financial statements accurately reflect the values of intangible assets.
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