Transactions during 2011 of the newly organized Menlove Corporation included the following:
2-Jan Paid legal fees of $15,000 and stock certificates costs of $8,300 to complete organization of the corporation.
15-Jan Hired a clown to stand in front of the corporate office for two weeks and hand out pamphlets and candy to create goodwill for the new enterprise. Clown cost, $1,000, pamphlets and candy, $500
1-Apr Patented a newly developed process with cost as follows:
Legal fees to obtain patent $42,900
Patent application and licensing fees $6,350
It is estimated that in six years other companies will have developed improved processes, making the Menlove Corp. process obsolete.
1-May Acquired both a license to use a special type of container and a distinctive trademark to be printed on the container n exchange for 600 shares of Menlove Corp. no-par common stock selling for $50 per share The license is worth twice as much as the trademark, both of which may be used for six years.
1-Jul Constructed a shed for $131,000 to house prototypes of experimental models to be developed in future research projects.
31-Dec Incurred salaries for an engineer and chemist involved in product development totaling $175,000 in 2011.
2) Present the Intangible Assets section of Menlove Corp.'s balance sheet at Dec. 31, 2011.© BrainMass Inc. brainmass.com October 17, 2018, 1:42 am ad1c9bdddf
Depreciation, impairment, depletion, and accounting for franchise, patents, and trade names.
E11-18 (Impairment) The management of Petro Garcia Inc. was discussing whether certain equipment
should be written off as a charge to current operations because of obsolescence. This equipment has a cost
of $900,000 with depreciation to date of $400,000 as of December 31, 2007. On December 31, 2007, management
projected its future net cash flows from this equipment to be $300,000 and its fair value to be
$230,000. The company intends to use this equipment in the future.
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2007.
(b) Where should the gain or loss (if any) on the write-down be reported in the income statement?
(c) At December 31, 2008, the equipment's fair value increased to $260,000. Prepare the journal entry
(if any) to record this increase in fair value.
(d) What accounting issues did management face in accounting for this impairment?
P11-10 (Comprehensive Depreciation Computations) Sheryl Crow Corporation, a manufacturer of
steel products, began operations on October 1, 2006. The accounting department of Crow has started the
fixed-asset and depreciation schedule presented on page 563. You have been asked to assist in completing
this schedule. In addition to ascertaining that the data already on the schedule are correct, you have
obtained the following information from the company's records and personnel.
1. Depreciation is computed from the first of the month of acquisition to the first of the month of
2. Land A and Building A were acquired from a predecessor corporation. Crow paid $820,000 for the
land and building together. At the time of acquisition, the land had an appraised value of $90,000,
and the building had an appraised value of $810,000.
3. Land B was acquired on October 2, 2006, in exchange for 2,500 newly issued shares of Crow's common
stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of
$30 per share. During October 2006, Crow paid $16,000 to demolish an existing building on this
land so it could construct a new building.
4. Construction of Building B on the newly acquired land began on October 1, 2007. By September
30, 2008, Crow had paid $320,000 of the estimated total construction costs of $450,000. It is estimated
that the building will be completed and occupied by July 2009.
5. Certain equipment was donated to the corporation by a local university. An independent appraisal
of the equipment when donated placed the fair market value at $30,000 and the salvage value at
562 ? Chapter 11 Depreciation, Impairments, and Depletion
6. Machinery A's total cost of $164,900 includes installation expense of $600 and normal repairs and maintenance
of $14,900. Salvage value is estimated at $6,000. Machinery A was sold on February 1, 2008.
7. On October 1, 2007, Machinery B was acquired with a down payment of $5,740 and the remaining
payments to be made in 11 annual installments of $6,000 each beginning October 1, 2007. The
prevailing interest rate was 8%. The following data were abstracted from present-value tables
Present value of $1.00 at 8% Present value of an ordinary annuity of $1.00 at 8%
10 years .463 10 years 6.710
11 years .429 11 years 7.139
15 years .315 15 years 8.559
SHERYL CROW CORPORATION
Fixed Asset and Depreciation Schedule
For Fiscal Years Ended September 30, 2007, and September 30, 2008
Estimated Year Ended
Acquisition Depreciation Life in September 30
Assets Date Cost Salvage Method Years 2007 2008
Land A October 1, 2006 $ (1) N/A N/A N/A N/A N/A
Building A October 1, 2006 (2) $40,000 Straight-line (3) $17,450 (4)
Land B October 2, 2006 (5) N/A N/A N/A N/A N/A
Building B Under $320,000 - Straight-line 30 - (6)
Construction to date
Donated Equipment October 2, 2006 (7) 3,000 150% declining 10 (8) (9)
Machinery A October 2, 2006 (10) 6,000 Sum-of-the- 18 (11) (12)
Machinery B October 1, 2007 (13) - Straight-line 20 - (14)
For each numbered item on the schedule above, supply the correct amount. Round each answer to the
P12-3 (Accounting for Franchise, Patents, and Trade Name) Information concerning Haerhpin Corporation's
intangible assets is as follows.
1. On January 1, 2007, Haerhpin signed an agreement to operate as a franchisee of Hsian Copy Service,
Inc. for an initial franchise fee of $75,000. Of this amount, $15,000 was paid when the agreement
was signed, and the balance is payable in 4 annual payments of $15,000 each, beginning January 1,
2008. The agreement provides that the down payment is not refundable and no future services are
required of the franchisor. The present value at January 1, 2007, of the 4 annual payments discounted
at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides
that 5% of the revenue from the franchise must be paid to the franchisor annually. Haerhpin's revenue
from the franchise for 2007 was $950,000. Haerhpin estimates the useful life of the franchise
to be 10 years. (Hint: You may want to refer to Appendix 18A to determine the proper accounting
treatment for the franchise fee and payments.)
2. Haerhpin incurred $65,000 of experimental and development costs in its laboratory to develop a
patent that was granted on January 2, 2007. Legal fees and other costs associated with registration
of the patent totaled $13,600. Haerhpin estimates that the useful life of the patent will be 8 years.
3. A trademark was purchased from Shanghai Company for $32,000 on July 1, 2004. Expenditures for
successful litigation in defense of the trademark totaling $8,160 were paid on July 1, 2007. Haerhpin
estimates that the useful life of the trademark will be 20 years from the date of acquisition.
(a) Prepare a schedule showing the intangible assets section of Haerhpin's balance sheet at December
31, 2007. Show supporting computations in good form.
(b) Prepare a schedule showing all expenses resulting from the transactions that would appear on
Haerhpin's income statement for the year ended December 31, 2007. Show supporting computations
in good form.