Question

Exercise 12-13

Presented below is information related to copyrights owned by Crane Company at December 31, 2020.

Cost		$8,530,000
Carrying amount		4,260,000
Expected future net cash flows		3,930,000
Fair value		3,580,000

Assume that Crane Company will continue to use this copyright in the future. As of December 31, 2020, the copyright is estimated to have a remaining useful life of 10 years.

A.)

Prepare the journal entry to record the impairment of the asset at December 31, 2020. The company does not use accumulated amortization accounts. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

B.) Prepare the journal entry to record amortization expense for 2021 related to the copyrights. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

C.)

The fair value of the copyright at December 31, 2021, is $3,700,000. Prepare the journal entry necessary to record the increase in fair value. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

a
Account Titles and Explanation	Debit	Credit
Loss on impairment	680000
Copyright		680000
b
Account Titles and Explanation	Debit	Credit
Amortization expense	358000
Copyright		358000
c
Account Titles and Explanation	Debit	Credit
No entry	0
No entry		0
Workings:
Carrying Amount	4260000
Less: Fair value	3580000
Loss on impairment	680000
Revised Carrying amount	3580000
Divide by Remaining life	10
Amortization expense for 2021	358000
Restoration of impairment loss is not permitted. No entry is required to record increase in fair value.