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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. On December 31, the company determined that $3,400,000 of goodwill was impaired. B. Governmental and legal costs of $4,800,000 were incurred on September 30 in obtaining a patent with an estimated economic life of eight years. Amortization is to be for one-fourth of a year. C. Timber rights on a tract of land were purchased for $2,975,000 on February 4. The stand of timber is estimated at 12,500,000 board feet. During the current year, 4,150,000 board feet of timber were cut and sold. 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 to record the amortization, depletion, or impairment for each item.
Financial & Managerial Accounting
Solutions
Financial & Managerial Accounting
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. On December 31, the company determined that $3,400,000 of goodwill was impaired.
- B. Governmental and legal costs of $4,800,000 were incurred on September 30 in obtaining a patent with an estimated economic life of eight years. Amortization is to be for one-fourth of a year.
- C. Timber rights on a tract of land were purchased for $2,975,000 on February 4. The stand of timber is estimated at 12,500,000 board feet. During the current year, 4,150,000 board feet of timber were cut and sold.
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 to record the amortization, depletion, or impairment for each item.
1(A)
Amortization: Itis 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:
To determine: the amount of the impairment for the current year for goodwill.
Explanation of Solution
A goodwill asset becomes impaired when the fair market value of the asset reduces than its purchase price...
B.
C.
2(A)
To journalize: the adjusting entry on December 31 to recognize the loss from impaired goodwill.
B.
To Journalize: an adjusting entry on December 31 for the amortization of the patent cost.
C.
To journalize: the adjusting entry on December 31 to recognize the depletion expense.
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