Question

Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:

Timber rights on a tract of land were purchased for $945,000 on February 22. The stand of timber is estimated at 4,500,000 board feet. During the current year, 1,200,000 board feet of timber were cut and sold.

On December 31, the company determined that $1,210,000 of goodwill was impaired.

Governmental and legal costs of $7,560,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 15 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. Do not round your intermediate calculation.

Item	Impairment, Amortization or Depletion Expense
a.	$
b.	$
c.	$

2. Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item.

a.
b.
c.

Answer 1

1)

Part -	formula
a)Depletion	[cost*extraction/total extraction	945000*1200000/4500000= 252000
b)IMpairment		1,210,000
c)Amortisation	[cost /useful life	7560000/15=504000 for year or [504000*3/4]= $ 378000

2)

part	Account	debit	credit
a	Depletion expense	252000
	Accumulated depletion		252000
b	Impairment loss	1,210,000
	goodwill		1,210,000
c	AMortisation expense	378000
	Accumulated amortisation -patent		378000