On December 31, it was estimated that goodwill of $4,000,000 was impaired. In addition, a patent with an estimated useful

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.


Answer:










a. Dec. 31 Loss from Impaired Goodwill 4,000,000
Goodwill 4,000,000
Impaired goodwill.

b.
 Dec. 31 Amortization Expense—Patents 25,000
Patents 25,000
Amortized patent rights
[($900,000 ÷ 15) × 5/12].






On December 31, it was estimated that goodwill of $6,000,000 was impaired. In addition, a patent with an estimated useful economic life of 12 years was acquired for $1,500,000 on April 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.


Answer:









a.
 Dec. 31 Loss from Impaired Goodwill 6,000,000
Goodwill 6,000,000
Impaired goodwill.
b. Dec. 31 Amortization Expense—Patents 93,750
Patents 93,750
Amortized patent rights
[($1,500,000 ÷ 12) × 9/12].

List the errors you find in the following partial balance sheet:Burnt Red Company

List the errors you find in the following partial balance sheet:





















Burnt Red Company
Balance Sheet
December 31, 2014
Assets
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000
Replacement
Cost
Accumulated
Depreciation
Book
Value
Property, plant, and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250,000 $ 50,000 $200,000
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 160,000 290,000
Factory equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,000 140,000 235,000
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 60,000 65,000
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 — 90,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 10,000 50,000
Total property, plant, and equipment . . . . . . . . $1,350,000 $420,000 $930,000


Answer:
1. Fixed assets should be reported at cost and not replacement cost.
2. Land does not depreciate.
3. Patents and goodwill are intangible assets that should be listed in a separate section following the Fixed Assets section. Patents should be reported at their net book values (cost less amortization to date). Goodwill should not be amortized, but should be only written down upon impairment.