Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 9 Fixed Assets and Intangible Assets 427

a. Compute the book value of the fixed assets for the current year and the preceding year

and explain the differences, if any.

b. Would you normally expect the book value of fixed assets to increase or decrease during

the year?

Metals Inc. acquired metal recycling equipment acquired on January 3, 2003, at a cost of $240,000,

with an estimated useful life of 10 years, an estimated residual value of $15,000, and is depreci-

ated by the straight-line method.

a. What was the book value of the equipment at December 31, 2006, the end of the fiscal year?

b. Assuming that the equipment was sold on July 1, 2007, for $135,000, journalize the entries

to record (1) depreciation for the six months until the sale date and (2) the sale of the

equipment.

Equipment acquired on January 3, 2004, at a cost of $96,000, has an estimated useful life of six

years and an estimated residual value of $6,000.

a. What was the annual amount of depreciation for the years 2004, 2005, and 2006, using the

straight-line method of depreciation?

b. What was the book value of the equipment on January 1, 2007?

c. Assuming that the equipment was sold on January 2, 2007, for $38,000, journalize the en-

try to record the sale.

d. Assuming that the equipment had been sold on January 2, 2007, for $53,000 instead of

$38,000, journalize the entry to record the sale.

Colmey Company acquired patent rights on January 3, 2004, for $472,500. The patent has a use-

ful life equal to its legal life of 15 years. On January 5, 2007, Colmey successfully defended the

patent in a lawsuit at a cost of $75,000.

a. Determine the patent amortization expense for the current year ended December 31, 2007.

b. Journalize the adjusting entry to recognize the amortization.

On July 1, 2005, Cumberland Products, Inc., purchased the assets of Jupiter Brands, Inc., for

$12,000,000, a price reflecting a $3,200,000 goodwill premium. On December 31, 2007,

Cumberland determined that the goodwill from the Jupiter acquisition was impaired and had a

value of $1,000,000.

a. Determine the book value of the goodwill on December 31, 2007, prior to making the im-

pairment adjusting entry.

b. Record the goodwill impairment adjusting entry for December 31, 2007.

During the first half of 2006, Hi-Def Electronics Company spent $450,000 on research and de-

velopment efforts that resulted in a new product invention. During June, Hi-Def incurred

$50,000 to prepare a patent application and an additional $10,000 for legal fees associated with

a patent search, resulting in a pending patent award on July 1, 2006. Management expects the

patent to have a life of 12 years. During December 2006, the patent was successfully defended

in a legal proceeding which cost $149,500.

a. Record the year-end adjusting journal entry for patent amortization on December 31,

2006.

b. Determine the patent book value on December 31, 2006.

c. Record the year-end adjusting journal entry for patent amortization on December 31,

2007.

Exercise 9-22

Amortization entries

Goal 4

a. $37,750

Exercise 9-23

Goodwill impairment

Goal 4

a. $3,200,000

Exercise 9-24

Patent and amortization
entries

Goal 4

b. $207,000

Exercise 9-20

Entries for sale of fixed asset

Goal 3

Exercise 9-21

Disposal of fixed asset

Goal 3

b. $51,000