Question

Data related to the acquisition of timber rights and intangible assets Long-term assets that are useful...

Data related to the acquisition of timber rights and intangible assets

Long-term assets that are useful in the operations of a business, are not held for sale, and are without physical qualities.

during the current year ended December 31 are as follows:

A. Timber rights on a tract of land were purchased for $3,461,120 on February 22. The stand of timber is estimated at 5,408,000 board feet. During the current year, 1,028,300 board feet of timber were cut and sold.
B. On December 31, the company determined that $3,640,000 of goodwill

An intangible asset that is created from such favorable factors as location, product quality, reputation, and managerial skill.

was impaired.
C. Governmental and legal costs of $6,108,000 were incurred on April 3 in obtaining a patent

Exclusive rights to produce and sell goods with one or more unique features.

with an estimated economic life of 10 years. Amortization is to be for three-fourths of a year.

Required:

1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items.
2. Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item. Refer to the Chart of Accounts for exact wording of account titles.

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Starting questions

1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the items in the Instructions.

A.
B.
C.

Points:

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Explanation

none

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Chart of Accounts

CHART OF ACCOUNTS
General Ledger
ASSETS
110 Cash
111 Petty Cash
112 Accounts Receivable
114 Interest Receivable
115 Notes Receivable
116 Merchandise Inventory
117 Supplies
119 Prepaid Insurance
120 Land
123 Vehicles
124 Accumulated Depreciation-Vehicles
125 Equipment
126 Accumulated Depreciation-Equipment
130 Timber Rights
131 Accumulated Depletion
132 Goodwill
133 Patents
LIABILITIES
210 Accounts Payable
211 Salaries Payable
213 Sales Tax Payable
214 Interest Payable
215 Notes Payable
EQUITY
310 Common Stock
311 Retained Earnings
312 Dividends
313 Income Summary
REVENUE
410 Sales
610 Interest Revenue
620 Gain on Sale of Vehicles
621 Gain on Sale of Equipment
622 Gain on Sale of Timber Rights
623 Gain from Sale of Goodwill
EXPENSES
510 Cost of Merchandise Sold
520 Salaries Expense
521 Advertising Expense
522 Depreciation Expense-Vehicles
523 Delivery Expense
524 Repairs and Maintenance Expense
529 Selling Expenses
531 Rent Expense
532 Depreciation Expense-Equipment
533 Depletion Expense
534 Amortization Expense-Patents
535 Insurance Expense
536 Supplies Expense
539 Miscellaneous Expense
710 Interest Expense
720 Loss on Sale of Vehicles
721 Loss on Sale of Equipment
722 Loss on Sale of Timber Rights
723 Loss from Impaired Goodwill

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Journal

2. Journalize the transactions and the adjusting entries on December 31 . Refer to the Chart of Accounts for exact wording of account titles. Scroll down to access pages 2 through 3 of the journal.

a. Timber rights on a tract of land were purchased for $3,461,120 on February 22. The stand of timber is estimated at 5,408,000 board feet. During the current year, 1,028,300 board feet of timber were cut and sold.

PAGE 1

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

Adjusting Entries

2

3

Solution

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

Adjusting Entries

2

3

Points:

b. On December 31, the company determined that $3,640,000 of goodwill

An intangible asset that is created from such favorable factors as location, product quality, reputation, and managerial skill.

was impaired.

PAGE 2

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

Adjusting Entries

2

3

Solution

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

Adjusting Entries

2

3

Points:

c. Governmental and legal costs of $6,108,000 were incurred on April 3 in obtaining a patent

Exclusive rights to produce and sell goods with one or more unique features.

with an estimated economic life of 10 years. Amortization is to be for three-fourths of a year.

PAGE 3

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

Adjusting Entries

2

3

Homework Answers

Answer #1
1 Amount of depletion, impairment and amortization for the current year
A Cost of timber rights on a tract of land $3,461,120
Estimated stand of timber          5,408,000
Cost of depletion per board feet (3461120/5408000) $0.64
Current year depletion charges for 1,028,300 board feet $658,112
B Impairment loss $3,640,000
C Cost of Patent $6,108,000
Estimated economic life 10 years
Amortization period 3/4
Amortization (6108000/10 year x 3/4) $458,100
2 Adjusting entries
Account Titles Debit Credit
a Depletion expense $658,112
Accumulated depletion $658,112
b Loss from Impaired Goodwill $3,640,000
Goodwill $3,640,000
c Amortization expense-Patents $458,100
Patents $458,100
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