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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Impaired goodwill and amortization of patent

On December 31, it was estimated that goodwill of $4,000,000 was impaired. In addition, a patent with an estimated useful economic life of 15 years was acquired for $900,000 on August 1.

a.    Journalize the adjusting entry on December 31 for the impaired goodwill.

b.    Journalize the adjusting entry on December 31 for the amortization of the patent rights.

a.

To determine

Intangible Assets: These are the long-term assets having no physical existence. However, the benefits provided by these assets are used by the company for a long period of time. Example: Patent, Trademark, Goodwill, Copyrights.

Amortization: Itis the process of allocating the value of the intangible assets over its definite useful life.

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.

To Journalize: an adjusting entry on December 31 for impaired goodwill.

Explanation

Recordan adjusting entry on December 31 for impaired goodwill.

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

December 31 Loss from Impaired Goodwill      4,000,000  

b.

To determine

To Journalize: an adjusting entry on December 31 for the amortization of the patent rights.

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