# Amortization and depletion entries Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows: a. Timber rights on a tract of land were purchased for $1,600,000 on February 22. The stand of timber is estimated at 5,000,000 board feet. During the current year, 1,100,000 board feet of timber were cut and sold. b. On December 31, the company determined that$3,750,000 of goodwill was impaired. c. Governmental and legal costs of $6,600,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 12 years. Amortization is to be for three-fourths of a year. Instructions 1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items. 2. Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item. BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 #### Solutions Chapter Section Chapter 10, Problem 10.6APR Textbook Problem ## Amortization and depletion entriesData related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows: a. Timber rights on a tract of land were purchased for$1,600,000 on February 22. The stand of timber is estimated at 5,000,000 board feet. During the current year, 1,100,000 board feet of timber were cut and sold. b. On December 31, the company determined that $3,750,000 of goodwill was impaired. c. Governmental and legal costs of$6,600,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 12 years. Amortization is to be for three-fourths of a year. Instructions 1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items. 2. Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item.

Expert Solution

1.

To determine

Amortization: It is the process of allocating the value of an intangible asset over its definite useful life such as patent, copyright, and trademark.

Impairment of Goodwill: It is a situation that arises when the carrying value of the goodwill listed on the acquired company’s balance sheet, exceeds its fair market value.

Depletion: It refers to the process of proportionately distributing the cost of the extracting natural resources such as coal, mines, and petroleum from the earth to the number of units extracted. The following is the formula to calculate the depletion expense:

Depletion Cost per Unit = Cost of the asset  Residual valueEstimated Number of Units

Depletion Expense=(Depletion Cost per Unit × Number of units Extracted and Sold)

To determine: the amount of the amortization, depletion expense or impairment for the current year.

### Explanation of Solution

Determine the amount of the depletion expense for the current year.

Depletion rate =$0.32 per board foot (1) Number of board feet of timber cut and sold =1,100,000 board feet Depletion Expense = (Depletion rate×Number of timberscut and sold)=$0.32per boardfoot×1,100,000boardfeet=$352,000 The amount of the depletion expense for the current year for timber rights is$352,000.

Working note:

Determine the depletion rate.

Cost of the timber rights = $1,600,000 Estimated stand of timber = 5,000,000 board feet Depletion Rate = Cost of the asset Residual valueEstimated Number of units=$1,600,000$05,000,000boardfeet=$0

Expert Solution

2.

To determine

To journalize: the adjusting entry on December 31 to record the amortization, depletion, or impairment.

### Want to see the full answer?

Check out a sample textbook solution.See solution

### Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution