Wember Company acquired a subsidiary company on December 31, 2015, and recorded the cost of the intangible assets it acquired as follows: Patent $80,000 Trade name 100,000 Goodwill 250,000 The patent is being amortized by the straight-line method over an expected life of 10 years with no residual value. Amortization has been recorded for the current year. The trade name was considered to have an indefinite life. Because of the success of the subsidiary in the past, Wember has not previously considered any of the intangible assets to be impaired. However, in 2019, because of a current recession and technological changes in the subsidiary’s industry, Wember decides to review all of its intangible assets for impairment and record any adjustments at December 31, 2019. Wember estimates that the fair value of the patent is $42,000. The company estimates the fair value of the trade name to be $120,000 but decides that it now has a limited life of 6 years. The subsidiary company, which qualifies as a reporting unit, has a book value of $700,000, including the goodwill of $250,000. Wember estimates that the fair value of the subsidiary company is $620,000, of which it allocates 80% to the identifiable assets and liabilities. Question The journal entries Wember needs to record its intangible assets on December 31, 2019 would include: Debit to Loss on Impairment - Patent of $38,000 Credit to Amortization Expense - Tradename of $20,000 Credit to Loss on Impairment - Goodwill of $80,000 Debit to Gain on Tradename of $20,000
Wember Company acquired a subsidiary company on December 31, 2015, and recorded the cost of the intangible assets it acquired as follows:
|
Patent |
$80,000 |
|
Trade name |
100,000 |
|
|
250,000 |
The patent is being amortized by the straight-line method over an expected life of 10 years with no residual value. Amortization has been recorded for the current year. The trade name was considered to have an indefinite life.
Because of the success of the subsidiary in the past, Wember has not previously considered any of the intangible assets to be impaired. However, in 2019, because of a current recession and technological changes in the subsidiary’s industry, Wember decides to review all of its intangible assets for impairment and record any adjustments at December 31, 2019.
Wember estimates that the fair value of the patent is $42,000. The company estimates the fair value of the trade name to be $120,000 but decides that it now has a limited life of 6 years. The subsidiary company, which qualifies as a reporting unit, has a book value of $700,000, including the goodwill of $250,000. Wember estimates that the fair value of the subsidiary company is $620,000, of which it allocates 80% to the identifiable assets and liabilities.
Question
The
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Debit to Loss on Impairment - Patent of $38,000 |
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Credit to Amortization Expense - Tradename of $20,000 |
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Credit to Loss on Impairment - Goodwill of $80,000 |
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Debit to Gain on Tradename of $20,000 |
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