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Impairment of Copyright

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Presented below is information related to copyrights owned by Wamser Corporation on December 31, 2006.

Cost 2,700,000
Carrying amount 2,400,000
Expected future net cash flows 2,100,000
Fair value $1,400,000

Assume Wamser will continue to use this asset in the future. As of December 31, 2006, the copyrights have a remaining useful life of 5 years.

Instructions
(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2006.
(b) Prepare the journal entry to record amortization expense for 2007.
(c) The fair value of the copyright at December 31, 2007 is $1,500,000. Prepare the journal entry (if any) necessary to record this increase in fair value.
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Solution Summary

The solution explains how to determine if an asset is impaired and the related journal entries.

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a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2006.

For assets in use, an impairment loss is recognized when recoverable cost is less than carrying value. Recoverable cost is the undiscounted sum of net cash inflows expected to be received from using and disposing of ...

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