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Intermediate Accounting Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield Chapter 12. Intangible Assets Solution Manual
Typology: Exercises
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Topics Questions
Brief Exercises Exercises Problems
Concepts for Analysis
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14
1, 2, 3, 5, 6
1, 2, 3, 5, 6
1, 2
9, 10, 11, 25 1, 2, 3, 4, 7, 9, 10
4, 5, 6, 7, 8, 9, 10, 12
1, 2, 3, 5, 6
1, 2
4, 5
15, 16, 17, 18 6, 7, 8 13, 14 5
19, 20, 21, 22, 23, 24
11, 12, 13 4, 15, 16, 17
1, 2, 3, 6 1, 3, 4
Learning Objectives Questions
Brief Exercises Exercises Problems
Concepts for Analysis
1, 2, 3, 6, 7, 8, 9, 10, 25
1, 2, 3, 4, 9, 10
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12
1, 2, 3, 5 1, 2, 3, 4
10, 11, 25 1, 2, 3, 4, 9, 10
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 16
1, 2, 3, 5, 6
1, 2, 3
5, 12, 13, 14, 18, 25
5 11, 12, 14 1, 4, 5
6, 7, 15, 16, 17, 18
6, 7, 8 7, 10, 13, 14
2, 4, 5, 6
9, 10, 19, 20, 21, 22, 23, 24
9, 10, 11, 12, 13
4, 5, 6, 8, 9, 15, 16, 17
1, 2, 4, 6 1, 3, 4
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication
Questions Chapter 12 (Continued)
LO: 1, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 3, Bloom: K, Difficulty: Moderate, Time: 5-10, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Measurement, Reporting, AICPA PC: Communication
LO: 3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
Questions Chapter 12 (Continued)
LO: 5, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 5, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
LO: 5, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
LO: 5, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
LO: 4, 5, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
amortization purposes. Original amortization:
$540, 30
= $18,000 per year; $18,000 X 10 years expired = $180,000 accumulated amortization. $540,000 original cost –180,000 accumulated amortization $360,000 remaining cost to amortize $360,000 ÷ 30 years = $12,000 amortization for 2017 and years thereafter.
LO: 2, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Reflecting Thinking, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
Carrying Amount
Life in Months
Amortization Per Month
Months Amortization
Patent (1/1/17) $288,000 96 $3,000 12 Legal costs (12/1/17) 85,000 85 $1,000 1 $373,
Carrying amount ....................................................... $373, Less: Amortization of patent (12 X $3,000) ............ (36,000) Legal costs amortization (1 X $1,000) .......... (1,000) Carrying amount 12/31/17 ........................................ $336,
LO: 1, 2, 5, Bloom: AP, Difficulty: Simple, Time: 5-7, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
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.
LO: 1, 2, 5, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
Organization Expense .................................................. 60, Cash ..................................................................... 60,
LO: 5, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
Research and Development Expense ...................... 430, Cash .................................................................. 430,
LO: 5, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
(a) Capitalize (b) Expense (c) Expense (d) Expense
LO: 5, Bloom: AP, Difficulty: Simple, Time: 3-5, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 12-2 (Continued)
Investments in affiliated companies would be classified as part of the investments section of the balance sheet.
Research and development costs would be classified as an operating expense on the income statement.
Discount on notes payable is shown as a deduction from the related notes payable on the balance sheet.
Organization costs are start-up costs and should be expensed as incurred.
LO: 1, 2, Bloom: AN, Difficulty: Simple, Time: 10-15, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
EXERCISE 12-3 (10–15 minutes)
(a) Trademarks $15, Excess of cost over fair value of net identifiable assets of acquired subsidiary (goodwill) 75, Total intangible assets $90,
(b) Organization costs, $24,000, should be expensed.
Discount on bonds payable, $35,000, should be reported as a contra account to bonds payable in the long-term liabilities section on the balance sheet.
Deposits with advertising agency for ads to promote goodwill of company, $10,000, should be reported either as an expense or as prepaid advertising in the current assets section of the balance sheet. Advertising costs in general are expensed when incurred or when first used.
Cost of equipment acquired for research and development projects, $90,000, should be reported with property, plant, and equipment, on the balance sheet 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, $80,000, should be classified as research and development expense on the income statement.
LO: 1, 2, Bloom: AN, Difficulty: Moderate, Time: 10-15, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
EXERCISE 12-4 (15–20 minutes)
Amortization for 2015 and 2016 ($1,000,000/10) X 2 $200, 2017 amortization: ($1,000,000 – $200,000) ÷ (6 – 2) 200, Accumulated amortization, 12/31/17 $400,
LO: 1, 2, 5, Bloom: AN, Difficulty: Moderate, Time: 15-20, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
EXERCISE 12-7 (10–15 minutes)
(a) 2016 amortization: $16,000 ÷ 10 = $1,600. 12/31/16 book value: $16,000 – $1,600 = $14,400.
2017 amortization: ($14,400 + $7,800) ÷ 9 = $2,467. 12/31/17 book value: ($14,400 + $7,800 – $2,467) = $19,733.
(b) 2017 amortization: ($14,400 + $7,800) ÷ 4 = $5,550. 12/31/17 book value: $14,400 + $7,800 – $5,550 = $16,650.
(c) Carrying amount ($19,733) > future cash flows ($16,000); thus the trade name fails the recoverability test. The new carrying value is $15,000—the trade name’s fair value.
2018 amortization (after recording impairment loss): $15,000 ÷ 8 = $1,875. 12/31/18 book value: $15,000 – $1,875 = $13,125.
LO: 1, Bloom: AP, Difficulty: Simple, Time: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 12-8 (15–20 minutes)
(a) CARTER COMPANY Intangibles Section of Balance Sheet December 31, 2017
Patent from Ford Company, net of accumulated amortization of $560,000 (Schedule 1) $1,440, Franchise from Polo Company, net of accumulated amortization of $48,000 (Schedule 2) 432, Total intangibles $1,872,
Schedule 1 Computation of Patent from Ford Company Cost of patent at date of purchase $2,000, Amortization of patent for 2016 ($2,000,000 ÷ 10 years) (200,000) 1,800, Amortization of patent for 2017 ($1,800,000 ÷ 5 years) (360,000) Patent balance $1,440,
Schedule 2 Computation of Franchise from Polo Company Cost of franchise at date of purchase $ 480, Amortization of franchise for 2017 ($480,000 ÷ 10) (48,000) Franchise balance $ 432,
(b) CARTER COMPANY Income Statement Effect For the year ended December 31, 2017
Patent from Ford Company: Amortization of patent for 2017 ($1,800,000 ÷ 5 years) $360, Franchise from Polo Company: Amortization of franchise for 2017 ($480,000 ÷ 10) $ 48, Payment to Polo Company ($2,500,000 X 5%) 125,000 173, Research and development costs 433, Total charged against income $966,
LO: 1, 2, 5, Bloom: AP, Difficulty: Moderate, Time: 15-20, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
EXERCISE 12-10 (15–20 minutes)
(a) Patent A Life in years 17 Life in months (12 X 17) 204 Amortization per month ($30,600 ÷ 204) $ Number of months amortized to date Year Month 2013 10 2014 12 2015 12 2016 12 46
Carrying amount 12/31/16 $23,700: ($30,600 – [46 X $150])
Patent B Life in years 10 Life in months (12 X 10) 120 Amortization per month ($15,000 ÷ 120) $ Number of months amortized to date Year Month 2014 6 2015 12 2016 12 30
Carrying amount 12/31/16 $11,250: ($15,000 – [$125 X 30])
Patent C Life in years 4 Life in months (12 X 4) 48 Amortization per month ($14,400 ÷ 48) $ Number of months amortized to date Year Month 2015 4 2016 12 16
Carrying amount 12/31/16 $9,600: ($14,400 – [$300 X 16])
EXERCISE 12-10 (Continued)
At December 31, 2016 Patent A $23, Patent B 11, Patent C 9, Total $44,
(b) Analysis of 2017 transactions
Book value $9, Less: Present value of future cash flows ($2,000 X 2.57710) 5, Loss recognized $ 4,
Patent B carrying amount (12/31/17) $5,
At December 31, 2017 Patent A $21,900 ($23,700 – [12 X $150]) Patent B 5,154 (Present value of future cash flows) Patent C 6,000 ($9,600 – [12 X $300]) Patent D 34,560 ($36,480 – $1,920*) Total $67,
Patent D amortization Life in years 9 1/ Life in months 114 Amortization per month ($36,480 ÷ 114) $ $320 X 6 = $1,
LO: 1, 2, 4, Bloom: AP, Difficulty: Moderate, Time: 15-20, AACSB: Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication