Using the information below for Baxter Corporation, prepare all necessary journal entries ONLY on December 31, 2021, 2022, and 2023. If no entry is needed, write “No entry.” (Dates are all correct!!) Show all computations below. • Baxter Corporation purchases a copyright in January 2020 for $500,000, incurring legal costs of $50,000. The copyright has a legal life of 25 years and an estimated useful life of 10 years. • In January 2022, Baxter successfully defended its copyright, incurring $75,000 in legal fees. The estimated useful life remains the same. • During 2023, based on new marketing research, Baxter determines that the fair value of the copyright is $400,000. Estimated total future cash flows from the copyright are $425,000. Record any impairment loss and adjusting entry on December 31, 2023. No change in estimated useful life.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Using the information below for Baxter Corporation, prepare all necessary
31, 2021, 2022, and 2023. If no entry is needed, write “No entry.” (Dates are all correct!!) Show all
computations below.
• Baxter Corporation purchases a copyright in January 2020 for $500,000, incurring legal costs of
$50,000. The copyright has a legal life of 25 years and an estimated useful life of 10 years.
• In January 2022, Baxter successfully defended its copyright, incurring $75,000 in legal fees. The
estimated useful life remains the same.
• During 2023, based on new
$400,000. Estimated total future
loss and
00Lega Cost for purchase of copyright is added to copyright account. It means the legal cost for acquiring the copyright is Capital in nature. Further, the legal expense for successfully defending is also capitalized to intangible assets.
Amortization of Copyright:
The copyright asset is amortized over the lower of economic life or legal life.
Impairment test:
When assets carrying value exceeds its recoverable amount the impairment loss is required to be recognized.
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