Problem 1 - Intangibles
On January 1, 2011, Kramer Corp spent $250,000 developing a patent and $90,000 in legal fees to secure the patent. Kramer estimated its productive life to be 15 years, although its legal life was 20 years. On January 1, 2012, Kramer spent $5,600 in legal fees in defense of the patent and won the suit.
On December 31, 2014, one of Kramer's competitors developed a patent that significantly rivaled Kramer's product. Kramer's CFO determined that the the fair value of the patent is $66,000 and future expected cash flows from Kramer's patent would be $63,000.
Instructions -
1. How much is the book value of the patent at Kramer's year end on December 31, 2012?
2. What was the book value of the patent as of December 31, 2015?
3. What journal entries, if any, did Kramer make on December 31, 2014?
Problem 2 - Exchanges
On January 1, 2012, Wallace Company and Diggs Company agree to exchange assets with the following characteristics:
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Wallace Company
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Diggs Company
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Original Cost
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$50,000
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$60,000
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Accumulated Depreciation
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30,000
|
40,000
|
|
Fair market value
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24,000
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30,000
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Wallace Company has agreed to pay $6,000 cash to Diggs Company in the exchange.
Instructions -
1. Assume that the exchange of assets has commercial substance. Make the necessary journal entries to record the exchange for both parties.
2. Assume that the exchange of assets does not have commercial substance. Make the necessary journal entries to record the exchange for both parties.
Problem 3 - Capitalization of Interest
Early in 2011, Parker Corp. engaged Gable, Inc. to design and construct a complete modernization of Parker's manufacturing facility. Construction began on June 1, 2011 and was completed on December 31, 2011. Parker made the following payments to Gable, Inc. during 2011:
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Date
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Payment Amount
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June 1, 2011
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$2,400,000
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September 30, 2011
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7,800,000
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|
December 31, 2011
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4,000,000
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To help finance the construction, Parker issued the following during 2011: $1,500,000, 10-year, 10 percent note payable issued on June 1, 2011, with interest payable annually on May 31.
Other debt held by the company during 2011 was as follows:
- A $4,000,000, 12-percent note payable dated January 1, 2008, due January 1, 2016, with interest payable annually on January 1.
- A 30-day, 9 percent loan dated July 1, 2011, in the amount of $1,000,000.
Instructions -
1. Compute the weighted-average accumulated expenditure qualifying for capitalization of interest cost.
2. Compute the avoidable interest.
3. The building has a salvage value of $800,000 and a useful life of 50 years. What is the book value of the building as of 12/31/2012?