On January 1, 2020 (the first day of its fiscal year) Pina Ltd. acquired a patent which gave the company the right to use a production process. The process met the six criteria for capitalization as an intangible asset. Below is a listing of the events relating to the patent over the five fiscal years from 2020 through 2024: 2020: on January 1, acquired the patent for the production process from its inventory for a cash payment of $11,700,000, and determined that the process had an indefinite useful life. on December 31, tested the patent for impairment and determined that its fair value was $13,200,000. 2021: on December 31, tested the patent for impairment and determined that its fair value was $10,500,000. 2022: on December 31, tested the patent for impairment and determined that its fair value was $12,000,000. 2023: on January 1, determined that the useful life of the patent was no longer indefinite, its carrying amount was recoverable, its estimated remaining useful life was 5 years, its estimated residual value was $0 and the pattern of economic benefits to be obtained from the patent during those 5 years was evenly spread over those 5 years. on December 31, tested the process for impairment and recoverability and determined that its fair value was $1,500,000 and its carrying amount was recoverable. 2024: on December 31, tested the patent for impairment and recoverability and determined that its fair value was $0 and its carrying amount was not recoverable. Prepare all journal entries related to the patent for the production process Pina will record from January 1, 2020 to December 31, 2024, using the cost recovery impairment model. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
On January 1, 2020 (the first day of its fiscal year) Pina Ltd. acquired a patent which gave the company the right to use a production process. The process met the six criteria for capitalization as an intangible asset. Below is a listing of the events relating to the patent over the five fiscal years from 2020 through 2024: 2020: on January 1, acquired the patent for the production process from its inventory for a cash payment of $11,700,000, and determined that the process had an indefinite useful life. on December 31, tested the patent for impairment and determined that its fair value was $13,200,000. 2021: on December 31, tested the patent for impairment and determined that its fair value was $10,500,000. 2022: on December 31, tested the patent for impairment and determined that its fair value was $12,000,000. 2023: on January 1, determined that the useful life of the patent was no longer indefinite, its carrying amount was recoverable, its estimated remaining useful life was 5 years, its estimated residual value was $0 and the pattern of economic benefits to be obtained from the patent during those 5 years was evenly spread over those 5 years. on December 31, tested the process for impairment and recoverability and determined that its fair value was $1,500,000 and its carrying amount was recoverable. 2024: on December 31, tested the patent for impairment and recoverability and determined that its fair value was $0 and its carrying amount was not recoverable. Prepare all journal entries related to the patent for the production process Pina will record from January 1, 2020 to December 31, 2024, using the cost recovery impairment model. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2020 (the first day of its fiscal year) Pina Ltd. acquired a patent which gave the company the right to use a production
process. The process met the six criteria for capitalization as an intangible asset. Below is a listing of the events relating to the patent
over the five fiscal years from 2020 through 2024:
2020:
on January 1, acquired the patent for the production process from its inventory for a cash payment of $11,700,000,
and determined that the process had an indefinite useful life.
on December 31, tested the patent for impairment and determined that its fair value was $13,200,000.
2021:
on December 31, tested the patent for impairment and determined that its fair value was $10,500,000.
2022:
on December 31, tested the patent for impairment and determined that its fair value was $12,000,000.
2023:
on January 1, determined that the useful life of the patent was no longer indefinite, its carrying amount was
recoverable, its estimated remaining useful life was 5 years, its estimated residual value was $0 and the pattern of
economic benefits to be obtained from the patent during those 5 years was evenly spread over those 5 years.
on December 31, tested the process for impairment and recoverability and determined that its fair value was
$1,500,000 and its carrying amount was recoverable.
2024:
on December 31, tested the patent for impairment and recoverability and determined that its fair value was $0 and its
carrying amount was not recoverable.
Prepare all journal entries related to the patent for the production process Pina will record from January 1, 2020 to December 31,
2024, using the cost recovery impairment model. (If no entry is required, select "No Entry" for the account titles and enter O for the
amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Transcribed Image Text:Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2020
Intangible Assets - Patents
11700000
Cash
11700000
Dec. 31, 2020
No Entry
No Entry
Dec. 31, 2021
Loss on Impairment
1200000
Accumulated Impairment Losses - Patents
1200000
Dec. 31, 2022
Dec. 31, 2023
Amortization Expense
Accumulated Amortization - Patents
Dec. 31, 2024
(To record amortization expense)
Dec. 31, 2024
(To record loss on impairment)
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