Wember Company acquired a subsidiary company on December 31, 2015, and recorded the cost of the intangible assets it acquired as follows: Patent Trade name Goodwill $100,000 80,000 150,000 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 Company acquired a subsidiary company on December 31, 2015, and recorded the cost of the intangible assets it acquired as follows: Patent Trade name Goodwill $100,000 80,000 150,000 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.
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter8: Operating Assets: Property, Plant, And Equipment, And Intangibles
Section: Chapter Questions
Problem 8.6E
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Question
There are two Journal Entries
1) Prepare journal entries for Wember to record the impairment of its intangible assets at December 31, 2019
2) Prepare journal entries for Wember to record the amortization expense for its intangibles at December 31, 2020
Transcribed Image Text:Instructions
Wember Company acquired a subsidiary company on December 31, 2015, and recorded the cost of the intangible assets it acquired as follows:
Patent
Trade name
Goodwill
$100,000
80,000
150,000
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.
Transcribed Image Text:Instructions
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 $90,000 but decides that it now has a limited life of 5 years.
The subsidiary company, which qualifies as a reporting unit, has a book value of $700,000, including the goodwill of $150,000. Wember estimates that the fair value of the subsidiary
company is $650,000, of which it allocates 80% to the identifiable assets and liabilities.
Required:
1. Prepare journal entries for Wember to record the impairment of its intangible assets at December 31, 2019.
2. Prepare journal entries for Wember to record the amortization expense for its intangibles at December 31, 2020.
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