BE12.

1 (LO 1, 2) Taylor Swift Corporation purchases a patent from Salmon Company on January 1,
2020, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will
be useful for 10 years. Prepare Taylor Swift’s journal entries to record the purchase of the patent and
2020 amortization.

Dr Patent 54,000

Cr Cash 54,000

Dr Amortization exp 5,400

Cr Patent 5,400 (54,000/10)

BE12.2 (LO 1, 2) Use the information provided in BE12.1. Assume that at January 1, 2022, the carrying
amount of the patent on Taylor Swift’s books is $43,200. In January, Taylor Swift spends $24,000
successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of
2029. Prepare the journal entries to record the $24,000 expenditure and 2022 amortization.

Patent 24,000

Cash 24,000

Amortization exp 8,400

Patent 8,400 ((43,000+24,000)/8)

BE12.3 (LO 1, 2) Stephan Curry, Inc., spent $68,000 in attorney fees while developing the trade name
of its new product, the Mean Bean Machine. Prepare the journal entries to record the $68,000
expenditure and the first year’s amortization, using an 8-year life.

Trade name 68,000

Cash 68,000

Amortization exp 8,500

Trade name 8,500 (68/8)

BE12.4 (LO 1, 2) Gershwin Corporation obtained a franchise from Sonic Hedgehog Inc. for a cash
payment of $120,000 on April 1, 2020. The franchise grants Gershwin the right to sell certain products
and services for a period of 8 years. Prepare Gershwin’s April 1 journal entry and December 31
adjusting entry.

Franchise 120,000

Cash 120,000

Armortization exp 11,250

Franchise 11,250

BE12.5 (LO 3) On September 1, 2020, Winans Corporation acquired Aumont Enterprises for a cash
payment of $700,000. At the time of purchase, Aumont’s balance sheet showed assets of $620,000,
liabilities of $200,000, and owners’ equity of $420,000. The fair value of Aumont’s assets is estimated
to be $800,000. Compute the amount of goodwill recorded by Winans in the acquisition.

Purchase
price....................................
........................... $700,000
Fair value of
assets...................................
.................... $800,000
Fair value of
liabilities.............................
...................... 200,000
Fair value of net
assets...................................
.............. 600,000
Value assigned to
goodwill..............................
............ $100,000
Purchase
price....................................
........................... $700,000
Purchase
price....................................
........................... $700,000
Purchase price............................................................... $700,000

Fair value of assets....................................... $800,000

Fair value of liabilities.................................... 200,000

Fair value of net assets................................................. 600,000

Value assigned to goodwill.......................................... $100,000
Purchase
price....................................
........................... $700,000
BE12.6 (LO 4) Kenoly Corporation owns a patent that has a carrying amount of $300,000. Kenoly
expects future net cash flows from this patent to total $210,000. The fair value of the patent is
$110,000. Prepare Kenoly’s journal entry, if necessary, to record the loss on impairment.

Loss on impairment 190,000

Patent 190,000 (310-110)

BE12.7 (LO 4) Waters Corporation purchased Johnson Company 3 years ago and at that time recorded
goodwill of $400,000. The Johnson Division’s net assets, including the goodwill, have a carrying
amount of $800,000. The fair value of the division is estimated to be $1,000,000. Prepare Waters’
journal entry, if necessary, to record impairment of the goodwill.

Because the fair value of the division exceeds the carrying amount oftheassets, goodwill is not considere
d to be impaired. No entry is necessary.

BE12.8 (LO 4) Use the information provided in BE12.7. Assume that the fair value of the division is
estimated to be $750,000. Prepare Waters’ journal entry, if necessary, to record impairment of the
goodwill.

Loss on impairment 50,000

Goodwill 50,000

BE12.9 (LO 1, 2, 5) Nieland Industries had one patent recorded on its books as of January 1, 2020. This
patent had a book value of $288,000 and a remaining useful life of 8 years. During 2020, Nieland
incurred research and development costs of $96,000 and brought a patent infringement suit against a
competitor. On December 1, 2020, Nieland received the good news that its patent was valid and that
its competitor could not use the process Nieland had patented. The company incurred $85,000 to
defend this patent. At what amount should patent(s) be reported on the December 31, 2020, balance
sheet, assuming monthly amortization of patents?

Carrying amount Life in month Amortization in Months

month amortization
Patent 288,000 96 3,000 12
Legal cost 85,000 85 1,000 1
373,000
Carrying amount 373,000

Less: Amortization of patent 36,000

Amortization of legal cost 1000

Carrying amount 31/12 336,000

BE12.10 (LO 1, 2, 5) Sinise Industries acquired two copyrights during 2020. One copyright related to a
textbook that was developed internally at a cost of $9,900. This textbook is estimated to have a useful
life of 3 years from September 1, 2020, the date it was published. The second copyright (a history
research textbook) was purchased from University Press on December 1, 2020, for $24,000. This
textbook has an indefi nite useful life. How should these two copyrights be reported on Sinise’s
balance sheet as of December 31, 2020?

Copyright No. 1 for $9,900 should be expensed and therefore not reported on the balance sheet.

Copyright No. 2 for $24,000 should be capitalized. Because the useful life is
indefinite, copyright No. 2 should be tested at least annually for impairment
using a fair value test. It would be reflected on the December 31, 2017
balance sheet at its cost of $24,000.

BE12.11 (LO 5) R. Wilson Corporation commenced operations in early 2020. The corporation incurred
$60,000 of costs such as fees to underwriters, legal fees, state fees, and promotional expenditures
during its formation. Prepare journal entries to record the $60,000 expenditure and 2020
amortization, if any.

Org expense 60,000

Cash 60,000

BE12.12 (LO 5) Treasure Land Corporation incurred the following costs in 2020.

Cost of laboratory research aimed at discovery of new knowledge $120,000

Cost of testing in search for product alternatives 100,000

Cost of engineering activity required to advance the design of a product to the manufacturing 210,000
stage

Total $430,000

Prepare the necessary 2020 journal entry or entries for Treasure Land.

Research and development expense 430,000

Cash 430,000

BE12.13 (LO 5) Indicate whether the following items are capitalized or expensed in the current year.

a. Purchase cost of a patent from a competitor.

Capitalized

b. Research and development costs.

Expensed

c. Organizational costs.

Expensed

d. Costs incurred internally to create goodwill.

Expensed