ch12_sol

InstructionsInstructions for the Microsoft Excel Templates by Rex A SchildhouseBe advised, the template workbooks and worksheets are not protected.Overtyping any data may remove it.

Extensive detail and information is contained within the help function of Microsoft Excel and in the provided text.You should enter your name, date, instructor's name, and course into the cells at the top of the page. This information will be printed on the top of each page if the template requires more than one page.Each template is set to print with File Name, Page # of # Page(s), the print date, and the print time to assist in assembly of multiple pages.

If more than one page is required by the template, manual page breaks have been set to provide consistent presentation.All of the cells have been correctly formatted for presentation and should not require any adjustment. For example, if the text requires one, two, or three significant digits in a presentation, the template has been set for that presentation in the appropriate cells.

In general, the yellow highlighted cells are the cells which work and effort should be presented. These entries may include date(s), account title(s), values, memorandum appropriate to the entry, or text answers to questions.

And information or data which may be required by the solution will be entered in cells with borders to help identify them.Where a yellow highlighted cell shows "Date" enter the appropriate date for that step of the challenge. This may be any date format that Microsoft Excel accepts. Some of these formats include "1/1/12", "01/01/12", and "01/01/2012." All of these will return January 01, 2012, in the format set in the template.

Where a yellow highlighted cell shows "Acct Nbr" enter the appropriate account number, provided in the template and in the text for that step of the challenge. This is entry may be a "Look to" formula to another cell where that information has been provided or previously entered.

Where a yellow highlighted cell shows "Account Title" enter the appropriate account title for that step of the challenge. This is a text entry and most of those cells are set for the proper indentation for that step. Frequently the chart of accounts appropriate to the challenge is provided and you can use the "look to" formula to reference the appropriate account title without typing it.

Check with your instructor to see if abbreviated account titles are acceptable. For example "A/R" for Accounts Receivable, "A/P" for Accounts Payable. If your instructor is using a comparison process between workbooks for grading, these abbreviates may not be acceptable.

Where a yellow highlighted cell shows titles such as "Values," "Amounts," or "Quantities" enter the appropriate numerical value for that step of the challenge. The cell is formatted for proper presentation of the entered information. If a dollar sign is appropriate, it should not be entered, Microsoft Excel will place it there through formatting. Commas and significant digits (decimals) are also set through formatting for common presentation. Since the formatting of the templates is not protected by any password, you may change any of the formatting found in the templates to meet your desires.

Where a yellow highlighted cell shows titles such as "Formula" you may enter the appropriate formula or enter a numerical value appropriate for that step of the challenge. Most of the values necessary for the appropriate formula are located on the template in cells with borders or in other yellow highlighted cells. The formula may be a simple "Look to" formula, an equal sign and a cell reference, "=E27" or more complex as "=E27*5," or something similar to the time-value-of-money formula. These are addressed in the tutorial text provided for Microsoft Excel.

Where a yellow highlighted cell shows "Text" enter the appropriate text for that step of the challenge. This may be a memorandum entry for a journal entry or a lengthy text answer discussing the results of an analysis of a company's financials. These titles can simply be typed over.

Where a yellow highlighted cell shows titles such as "Journal Number" or "Journ #" you should enter the appropriate number provided in the template and in the text for that step of the challenge. In general this will appear in instances such as "Record the following events in General Journal number six."

The print area is defined to fit onto 8 1/2" 11" sheets in portrait or landscape mode as required. Margins are generally set to no less than 1/2" so most printers can print them without a problem. If you printer cannot accept margins less than 1" you may have to reformat the margins through Page Setup.

The display may have "Freeze Pane" invoked so column titles remain visible during data entry. This can be removed by utilizing the View menu and selecting "Unfreeze Panes" under "Freeze Panes."

When negative values are required, enter them by starting with a minus sign, "-". Negative values may be shown as ($400) or -$400. Negative values in formulas can be created by putting a minus sign in front of the cell reference - "=E10*-E11" will return a negative value if both cells E10 and E11 contain positive values.

Microsoft Office and Microsoft Excel are products of, and copyrighted by,Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052-6399

Exercise 12-3 Solution

Name:SolutionDate:Instructor:Course:Intermediate Accounting, 14th Edition by Kieso, Weygandt, and WarfieldPrimer on Using Excel in Accounting by Rex A Schildhouse

E12-3 (Classification IssuesIntangible Asset) Langrova Inc. has the following amounts included in its general ledger at December 31, 2012.

Organization costs$24,000Trademarks$20,000Discount on bonds payable$35,000Deposits with advertising agency for ads to promote goodwill of company$10,000

Excess of cost over fair value of net identifiable assets of acquired subsidiary$75,000

Cost of equipment acquired for research and development projects; the equipment has an alternative future use$90,000

Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years$70,000

Instructions:(a) On the basis of the information above, compute the total amount to be reported by Langrova for intangible assets on its balance sheet at December 31, 2012. Equipment has alternative future use.

Trademarks$20,000Excess of cost over fair value of net assets of acquired subsidiary (goodwill)$75,000

Total intangible assets$95,000

(b) If an item is not to be included in intangible assets, explain its proper treatment for reporting purposes.

Organization costs, $24,000, should be expensed. Discount on bonds payable, $35,000, should be reported as a contra account to bonds payable in the long-term liabilities section.

Deposits with advertising agency for ads to promote goodwill of company, $10,000, should be reported either as an expense or as prepaid advertising in the current assets section. Advertising costs in general are expensed when incurred or when first used.

Cost of equipment acquired for research and development projects, $90,000, should be reported with property, plant, and equipment, because the equipment has an alternative use.

Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years, $70,000, should be classified as research and development expense on the income statement.

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Exercise 12-3

Name:Date:Instructor:Course:Intermediate Accounting, 14th Edition by Kieso, Weygandt, and WarfieldPrimer on Using Excel in Accounting by Rex A Schildhouse

E12-3 (Classification IssuesIntangible Asset) Langrova Inc. has the following amounts included in its general ledger at December 31, 2012.

Organization costs$24,000Trademarks$20,000Discount on bonds payable$35,000Deposits with advertising agency for ads to promote goodwill of company$10,000

Excess of cost over fair value of net identifiable assets of acquired subsidiary$75,000

Cost of equipment acquired for research and development projects; the equipment has an alternative future use$90,000

Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years$70,000

Instructions:(a) On the basis of the information above, compute the total amount to be reported by Langrova for intangible assets on its balance sheet at December 31, 2012. Equipment has alternative future use.

Text TitleAmountText TitleAmount

Text TitleFormula

(b) If an item is not to be included in intangible assets, explain its proper treatment for reporting purposes.

Enter text answer as appropriate here.





Exercise 12-6 Solution


E12-6 (Recording and Amortization of Intangibles) Powerglide Company, organized in 2011, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2012.

01/02/2012Purchased patent,8year life$380,00004/01/2012Purchased goodwill, indefinite life$360,00007/01/2012Purchased franchise with10year life, $450,000expiration date 7/1/2008/01/2012Payment of copyright,5year life$156,00009/01/2012Research and development costs$215,000$1,561,000Instructions:Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2012, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)

Patents 380,000Goodwill 360,000Franchises450,000Copyrights156,000Research and Development Expense 215,000Intangible Assets 1,561,000

Amortization Expense 83,000Patents [($380,000 / 8)47,500Franchises [($450,000 / 10) 6/12]22,500Copyrights [($156,000 / 5) 5/12]13,000

Balance of Intangible Assets as of December 31, 2012

Patents ($380,000 - $47,500)$332,500Goodwill (No amortization)360,000Franchises ($450,000 - $22,500)427,500Copyrights ($156,000 - $13,000)143,000


Exercise 12-6


E12-6 (Recording and Amortization of Intangibles) Powerglide Company, organized in 2011, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2012.

01/02/2012Purchased patent,8year life$380,00004/01/2012Purchased goodwill, indefinite life$360,00007/01/2012Purchased franchise with10year life, $450,000expiration date 7/1/2008/01/2012Payment of copyright,5year life$156,00009/01/2012Research and development costs$215,000$1,561,000Instructions:Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2012, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)

Account TitleAmountAccount TitleAmountAccount TitleAmountAccount TitleAmountAccount TitleAmountAccount TitleFormula

Account TitleFormulaAccount TitleFormulaAccount TitleFormulaAccount TitleFormula

Balance of Intangible Assets as of December 31, 2010

Account TitleFormulaAccount TitleFormulaAccount TitleFormulaAccount TitleFormula


Problem 12-2 Solution


P12-2 (Accounting for Patents) Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows.

Date:Activity:Cost:2003-2004Research conducted to develop precipitator$384,000Jan. 2005Design and construction of a prototype87,600March 2005Testing of models42,000Jan. 2006Fees paid engineers and lawyers to prepare patent application; patent granted June 30, 200659,500

Nov. 2007Engineering activity necessary to advance the design of the precipitator to the manufacturing stage81,500

Dec. 2008Legal fees paid to successfully defend precipitator patent42,000

April 2009Research aimed at modifying the design of the patented precipitator43,000

July 2013Legal fees paid in unsuccessful patent infringement suit against a competitor34,000

Fields assumed a useful life of17years when it received the initial precipitatorpatent. On January 1, 2011, it revised its useful life estimate downward to5remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1, and no amortization for the year if the cost is incurred after June 30. The company's year ends December 31.

Instructions:(a) Compute the carrying value of patent No. 758-6002-1A on December 31, 2006.

Costs to obtain patent Jan. 2006$59,5002006 amortization ($59,500 / 17 years)3,500Carrying value, 12/31/06$56,000

All costs incurred prior to January 2006 are related to research and development activities and were expensed as incurred in accordance with GAAP.

(b) Compute the carrying value of patent No. 758-6002-1A on December 31, 2010.

Carrying value of patent, Jan. 1, 2007$56,000Amortization 20073,500Amortization 20083,500(7,000)49,000Legal fees to defend patent Dec. 200842,000Carrying value, Dec. 31, 200891,000Amortization 20096,500Amortization 20106,500(13,000)Carrying value, Dec. 31, 2010$78,000

The costs incurred in 2007 and 2009 are related to research and development activities and are expensed as incurred.

(c) Compute the carrying value of patent No. 758-6002-1A on December 31, 2013.

Carrying value Jan 1, 2011$78,000Amortization 2011 ($78,000 / 5 years)$15,600Amortization 201215,600Amortization 201315,600(46,800)Carrying value, Dec 31, 2013$31,200

The legal costs in 2013 were expensed because the suit was unsuccessful.


Problem 12-2


P12-2 (Accounting for Patents) Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows.

Date:Activity:Cost:2003-2004Research conducted to develop precipitator$384,000Jan. 2005Design and construction of a prototype87,600March 2005Testing of models42,000Jan. 2006Fees paid engineers and lawyers to prepare patent application; patent granted June 30, 200659,500

Nov. 2007Engineering activity necessary to advance the design of the precipitator to the manufacturing stage81,500

Dec. 2008Legal fees paid to successfully defend precipitator patent42,000

April 2009Research aimed at modifying the design of the patented precipitator43,000

July 2013Legal fees paid in unsuccessful patent infringement suit against a competitor34,000

Fields assumed a useful life of17years when it received the initial precipitatorpatent. On January 1, 2011, it revised its useful life estimate downward to5remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1, and no amortization for the year if the cost is incurred after June 30. The company's year ends December 31.

Instructions:(a) Compute the carrying value of patent No. 758-6002-1A on December 31, 2006.

Costs to obtain patent Jan. 2006AmountText titleAmountText titleFormula

(b) Compute the carrying value of patent No. 758-6002-1A on December 31, 2010.

Carrying value of patent, Jan. 1, 2007FormulaText titleFormulaText titleFormulaFormulaFormulaLegal fees to defend patent Dec. 2008AmountText titleFormulaText titleFormulaText titleFormulaFormulaText titleFormula

Text answer as appropriate.

(c) Compute the carrying value of patent No. 758-6002-1A on December 31, 2013.

Carrying value Jan. 1, 2011AmountText TitleFormulaText TitleFormulaText TitleFormulaFormulaText TitleFormula

Text answer as appropriate.


Problem 12-5 Solution


P12-5 (Goodwill, Impairment) On July 31, 2012, Mexico Company paid$3,000,000to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following balance sheet at the time of the acquisition.

Current assets$800,000Current liabilities$600,000Noncurrent assets$2,700,000Long-term liabilities$500,000Total assets$3,500,000Stockholders equity$2,400,000Total liabilities and stockholders equity$3,500,000It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was$2,750,000Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2012, Conchita reports the following balance sheet information.

Current assets$450,000Noncurrent assets (including goodwill recognized in purchase)$2,400,000Current liabilities($700,000)Long-term liabilities($500,000)Net assets$1,650,000It is determined that the fair value of the Conchita Division is$1,850,000The recorded amount for Conchitas net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value$150,000above the carrying value.

Instructions:(a) Compute the amount of goodwill recognized, if any, on July 31, 2012.

Goodwill = Excess of the cost of the division over the fair value of the identifiable assets:$3,000,000 -$2,750,000 =$250,000

(b) Determine the impairment loss, if any, to be recorded on December 31, 2012.

No impairment loss is recorded, because the fair value of Conchita ($1,850,000) is greater than carrying value of the net assets ($1,650,000).

(c) Assume that fair value of the Conchita Division is$1,600,000instead of$1,850,000Determine the impairment loss, if any, to be recorded on December 31, 2012.

Implied fair value of goodwill = Fair value of division less the carrying value of the division (adjusted for fair value changes), net of goodwill:

Fair value of Conchita division$1,600,000Carrying value of division1,650,000Increase in fair value of PP&E150,000Less: Goodwill(250,000)(1,550,000)Implied fair value of goodwill50,000Carrying value of goodwill(250,000)Impairment loss($200,000)

(d) Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.

Loss on Impairment200,000Goodwill200,000

This loss will be reported in income as a separate line item before the subtotal income from continuing operations.


Problem 12-5


P12-5 (Goodwill, Impairment) On July 31, 2012, Mexico Company paid$3,000,000to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following balance sheet at the time of the acquisition.

Current assets$800,000Current liabilities$600,000Noncurrent assets$2,700,000Long-term liabilities$500,000Total assets$3,500,000Stockholders equity$2,400,000Total liabilities and stockholders equity$3,500,000It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was$2,750,000Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2012, Conchita reports the following balance sheet information.

Current assets$450,000Noncurrent assets (including goodwill recognized in purchase)$2,400,000Current liabilities($700,000)Long-term liabilities($500,000)Net assets$1,650,000It is determined that the fair value of the Conchita Division is$1,850,000The recorded amount for Conchitas net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value$150,000above the carrying value.

Instructions:(a) Compute the amount of goodwill recognized, if any, on July 31, 2012.

Text as appropriate.Amount -Amount =Formula

(b) Determine the impairment loss, if any, to be recorded on December 31, 2012.

Enter text answer here.

(c) Assume that fair value of the Conchita Division is$1,600,000instead of$1,850,000Determine the impairment loss, if any, to be recorded on December 31, 2012.

Enter text as appropriate.

Text titleAmountText titleAmountText titleAmountLess: Account titleAmountFormulaText titleFormulaText titleAmountText titleFormula

(d) Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.

Account titleAmountAccount titleAmount

Enter text answer here.
