Research and development expense in the income statement.. Research and development expense in the income statement.. Research and development expense in the income statement.. Research
Trang 1SOLUTIONS TO B EXERCISES
E121B (15–20 minutes)
10 Research and development expense in the income statement.
11 Property, plant, and equipment in the balance sheet.
12 Current asset (prepaid rent) in the balance sheet.
13 Research and development expense in the income statement.
14 Operating losses in the income statement.
16 Not recorded; any costs related to creating goodwill incurred
internally must be expensed.
18 Research and development expense in the income statement.
19 Charge as expense in the income statement.
20 Charge as expense in the income statement.
21 Property, plant, and equipment in the balance sheet.
22 Research and development expense in the income statement.
23 Longterm investments in the balance sheet.
E122B (10–15 minutes)
The following items would be classified as intangible assets:
Trang 2The following would be classified as noncurrent assets in the property, plant, and equipment section:
Property, plant, and equipment
Land
The following would be classified as part of the investments section of the balance sheet:
Investments in affiliated companies
The following would be classified as an operating expense:
Research and development costs
Discount on notes payable is shown as a deduction from the related notes payable on the balance sheet.
Organization costs are startup costs and should be expensed as incurred.
E123B (10–15 minutes)
(a) Trademarks $150,000
Excess of cost over fair value of net assets of
Trang 3Deposits with advertising agency for ads to promote goodwill of company,
$25,000, should be reported either as an expense or as prepaid advertising in the current assets section. Advertising costs in general are expensed when incurred or when first used.
Cost of equipment acquired for research and development projects, $300,000, should be reported with property, plant, and equipment, because the equipment has an alternative use.
Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years, $800,000, should be classified as research and development expense on the income statement.
E124B (15–20 minutes)
mulated amortization) on the balance sheet. The computation of accumu lated amortization is as follows.
Because it is uncertain that Tartabull will be able to retain the franchise at the end of 2022, it should be amortized over 10 years. The amount of amortization on the franchise for the year ended December 31, 2014, is
$80,000 (i.e., $800,000/10).
indefinite life. Thus, no amortization will be recorded. The license will be tested for impairment in future periods.
Trang 4Patents 30,000
Advertising Expense 126,000
*62,400 ÷ 240 months = $260; $260 X 3 = $780; $62,400 – $780 = $61,620
E126B (15–20 minutes)
Patents 525,000
Goodwill 540,000
Franchise 675,000
Copyright 234,000
Research and Development Expense 322,500
Amortization Expense 118,875
Balance of Intangible Assets as of December 31, 2014:
Trang 512/31/13 book value: $50,000 – $5,000 = $45,000
2014 amortization: ($45,000 + $20,000) ÷ 9 = $7,222
12/31/14 book value: ($45,000 + $20,000 – $7,222) = $57,778
12/31/14 book value: $45,000 + $20,000 – $16,250 = $48,750
name fails the recoverability test. The new carrying value is $10,000.
2015 amortization (after recording impairment loss):
$10,000 ÷ 8 = $1,250 12/31/15 book value: $10,000 – $1,250 = $8,750
E128B (10–15 minutes)
of the company $26,000 Costs of meetings of incorporators to discuss
organizational activities 17,000 State filing fees to incorporate 1,000 Total organization costs $44,000
Testing equipment, $61,000, should be classified as part of fixed assets, rather than as organization costs. Costs of meetings with potential customers should classified as advertising/marketing expense.
(b) Organization Cost Expense 44,000
Trang 6(a) YOUNT COMPANY
Intangibles Section of Balance Sheet
December 31, 2014 Patent from Ford Company, net of accumulated
amortization of $280,000 (Schedule 1) $ 720,000 Franchise from Reagan Company, net of accumulated
amortization of $96,000 (Schedule 2) 864,000 Total intangibles $1,584,000
Cost of patent at date of purchase $1,000,000 Amortization of patent for 2013 ($1,000,000 ÷ 10 years) (100,000)
900,000 Amortization of patent for 2014 ($900,000 ÷ 5 years) (180,000) Patent balance $ 720,000
Cost of franchise at date of purchase $960,000 Amortization of franchise for 2014 ($960,000 ÷ 10) (96,000) Franchise balance $864,000
Income Statement Effect For the year ended December 31, 2014 Patent from Ford Company:
Amortization of patent for 2014
($900,000 ÷ 5 years) $ 180,000 Franchise from Reagan Company:
Amortization of franchise for 2014
($960,000 ÷ 10) $ 96,000
Payment to Reagan Company
($5,000,000 X 5%) 250,000 346,000
Trang 7Cash 510,000
Patents 54,000
Cash 54,000
Patent Amortization Expense 1,350
2011 Patent Amortization Expense 5,400
Patents ($54,000 ÷ 10) 5,400
(b) 2012 Patents 28,440
Cash 28,440
Patent Amortization Expense 5,820
Patents ($2,250 + $3,570) 5,820 [Jan. 1—June 1: ($54,000 ÷ 10)
X 5/12 = $2,250 June 1—Dec. 31: ($54,000 – $1,350 – $5,400 – $2,250 + $28,440) = $73,440;
($73,440 ÷ 12) X 7/12 = $3,570]
2013 Patent Amortization Expense 6,120
Patents ($73,440 ÷ 12) 6,120
Patent Amortization Expense 31,875
Patents ($63,750 ÷ 2) 31,875 ($73,440 – $3,570 – $6,120) = $63,750
Trang 8(a) Patent A
Life in years 20
Number of months amortized to date
46 Book value 12/31/14: $38,800 ($48,000 – [46 X $200])
Patent B
Life in years 10
Number of months amortized to date
30 Book value 12/31/14: $14,400 ($19,200 – [$160 X 30])
Trang 9Patent C
Life in years 8
Number of months amortized to date
16 Book value 12/31/14: $14,000 ($16,800 – [$175 X 16])
At December 31, 2014
Patent A $38,800
Patent B 14,400
Patent C 14,000
Total $67,200
1 The $347,000 incurred for research and development should be expensed.
2 The book value of Patent B is $14,400 and its estimated future cash flows are $7,500 (3 X $2,500); therefore Patent B is impaired. The impairment loss is imputed as follows:
Book value $14,400 Less: Present value of future
cash flows 2,500 X 2.57710 6,443 Loss recognized $ 7,957
Trang 10Patent D amortization:
$75 X 6 = $450
E1212B (15 minutes)
Adjustments to fair value
The journal entry to record this transaction is as follows:
Cash 240,000
Land 240,000
Building 480,000
Equipment 408,000
Copyright 72,000
Goodwill 240,000
Trang 11(a) Cash 37,500
Receivables 67,500
Inventory 93,750
Land 45,000
Buildings 56,250
Equipment 52,500
Copyrights 11,250
Goodwill 48,750
Cash 187,500
Note that the building and equipment would be recorded at the 7/1/13 cost to Griffey; accumulated depreciation accounts would not be recorded.
E1214B (15–20 minutes)
Trang 12(b) Copyright Amortization Expense 385,000*
permitted for assets held for use.
E1215B (15–20 minutes)
The fair value of the reporting unit is below its carrying value. Therefore,
an impairment has occurred. To determine the impairment amount, we first find the implied goodwill. We then compare this implied fair value to the carrying value of the goodwill to determine the amount of the impairment to record.
Fair value of division $268,000,000
Carrying value of goodwill (160,000,000) Loss on impairment $ 12,000,000
adjusted carrying amount of the goodwill is its new accounting basis Subsequent reversal of previously recognized impairment losses is not permitted.
Trang 13charged to R&D Expense and, if not separately disclosed in the income statement, the total cost of R&D should be separately disclosed in the notes to the financial statements.
(To record research and development costs) Patents 12,000
(To record legal and administrative costs incurred to obtain patent ) Patent Amortization Expense 2,000
Patents 2,000 [To record one year’s amortization
expense ($12,000 ÷ 6 = $2,000)]
(c) Patents 18,600
(To record legal cost of successfully defending patent)
The cost of defending the patent is capitalized because the defense was successful and because it extended the useful life of the patent.
Patent Amortization Expense 5,720
Patents 5,720 (To record one year’s amortization
Expense:
$12,000 – $2,000 = $10,000;
Or
Trang 14(d) Additional engineering and consulting costs required to advance the
design of a product to the manufacturing stage are R&D costs As indicated in the chapter it is R&D because it translates knowledge into a plan or design for a new product.
E1217B (10–12 minutes)
Depreciation of equipment acquired that will have alternate
uses in future research and development projects over
the next 5 years ($300,000 ÷ 5) $ 60,000
Consulting fees paid to outsiders for research and
development projects 123,000 Personnel costs of persons involved in research and
development projects 215,000 Indirect costs reasonably allocable to research and
development projects 48,000
Total to be expensed in 2014 for research and
development $521,000
*E1218B (10–15 minutes)
revenues to current plus anticipated revenues (percent of revenue approach) or (b) the straightline method over the remaining useful life
of the asset to amortize capitalized computer software costs.
$24,000,000 Straightline method: 1/5 X $7,200,000 = 1,440,000
Trang 15Cash 5,000,000 Computer Software Costs
($8,600,000 – $5,000,000) 3,600,000
Cash 3,600,000 (b) Amortization Expense* 900,000
*Percent of revenue, $3,500,000 / $35,000,000 = 10%; 10% X $3,600,000 =
$360,000; Straightline, 1/4 X $3,600,000 =$900,000
Use straightline because it’s greater than the percent of revenue
approach, 1/4 = 25%
sheet at unamortized cost ($3,600,000 – $900,000 = $2,700,000) unless net realizable value is lower.
financial statements the unamortized computer software costs included in the balance sheet presented, and the total amount charged to expense in the income statement presented for amortization of capitalized computer software costs and for amounts written down to net realizable value.
computer software that is to be sold, leased, or otherwise marketed to third parties. No authoritative literature specifically addresses the issue
of computer software developed for internal use. In practice, such costs are generally expensed as incurred Therefore, the total of $8,600,000 would be expensed in (a), there would be no amortization in (b), and computer software costs would not be reported on the balance sheet in (c).