Question

Complete and submit the assignment in an EXCEL file.

Full credit is earned only if the formulas for the calculations is evident in the spreadsheet

She Shed. Corp was organized in 2017. These business events occurred during the year, affecting intangible assets.

1.    Purchased a license for $20,000 on July 1, 2017. The license gives She Shed exclusive rights to sell its sheds in the tri-state region and will expire on July 1, 2025.

2.    Purchased a patent on January 2, 2018, for $40,000. It is estimated to have a 5-year life.

3.    Costs incurred to develop an exclusive Internet connection process as of June 1, 2018, were $45,000. The process has an indefinite life.

4.    On April 1, 2018, She Shed. purchased a small circuit board manufacturer for $350,000. Goodwill recorded in the transaction was $90,000.

5.    On July 1, 2018, legal fees for successful defense of the patent purchased on January 2, 2018, were $11,400.

6.    Research and development costs incurred as of September 1, 2018, were $75,000.

(a) Prepare the journal entries to record all the entries related to the patent during 2018.

(b) At December 31, 2018, an impairment test is performed on the license purchased in 2017. It is estimated that the net cash flows to be received from the license will be $13,000, and its fair value is $7,000.

Compute the amount of impairment, if any, to be recorded on December 31, 2018.

(c) What is the amount to be reported for intangible assets on the balance sheet at December 31, 2017 and December 31, 2018?

Answer 1

a		Journal Entries
	Date	Account Title	Debit-$	Credit-$
	2-Jan-18	Patent	40000
		Cash		40000
	1-Jul-18	Patent	11400
		Cash		11400
	31-Dec-18	Patent Amortization Exp	9267
		Patents		9267
	WN	Computation of Patent Exp
		40000*12/60	8000
		11400*6/54	1267
			9267
b	Computation of impairment Loss
	Cost	20000
	Acc Depreciation	-3750
	(20000*18/96)
	Book Value	16250
	Book Value 16250 is greater than net cash flows of 13000.Therefore the license is impaired.The impair
	loss is computed as follows:
	Book Value	16250
	Fair Value	7000
	Loss	9250
c	Intangible Assets as on Dec 31 2017
	Cost	20000
	Less Accumulated Amortization
	20000*6/96	-1250
	Total	18750
	Intangible assets as on Dec 31 2018
	License	7000
	Patents(40000+11400-9267)	42133
	Goodwill	90000