Carter, Inc. manufactures pharmaceuticals. Over the past year, 2018, they purchased the following assets (assume all...

Carter, Inc. manufactures pharmaceuticals. Over the past year, 2018, they purchased the following assets (assume all purchases were made in cash):
A patent for the drug, Axteel, which prevents the spread of prostate cancer. This drug was being developed by Axtra, Inc. and was in the final stages of approval by the Food and Drug Administration. Carter purchased this patent on February 1 for $5,000,000. They estimate the useful life to be 7 years and started production of Axteel on June 15, 2018 (after FDA approval).

A pharmaceutical homogenizer for an experimental drug, Terzanz, was purchased on March 15, 2018 for $1,500,000. This drug is being developed to cure Alzheimers. The patent for this drug has yet to be filed with the FDA and initial tests don’t show significant results. The homogenizer has no other alternative uses and Carter estimates its useful life at 5 years.

A start-up company, Vample, Inc. Vample was in the process of developing three new pharmaceuticals and was seen as a major competitor to Carter. Carter purchased their net assets on June 1, 2018 for $23,000,000. At the time of purchase, Vample’s 3 patents were nearing approval by the FDA and Carter planned to start production of all 3 patents on October 1, 2018. Additionally, Vample had the following net assets on their balance sheet (shown as historical cost and fair market value):

Historical Cost Fair market value

   Receivables           $ 500,000           $ 400,000
   Inventory $2,500,000 $ 2,500,000
   Prop, Plant, Equipment       $7,500,000           $ 6,500,000
   3 Patents (life = 7 years)       $ 125,000           $ 11,000,000
   Customer list (life = 10 years)   $ 0           $ 1,500,000

Payables $ 350,000 $ 350,000
Long-term Notes Payable $2,250,000 $ 2,250,000

Instructions
Prepare the journal entries for the three purchases above.
Prepare the adjusting journal entries for the amortization of all intangible assets, purchased in 2018, as of 12/31/18. Assume all intangibles are amortized on a straight-line basis.

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Expert Solution

ekkarill92 answered 1 year ago

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