Problem 1 -
The Hostmeyer Corporation commenced operations early in 2011. A number of expenditures were made during 2011 that were debited to one account called intangible assets. A recap of the $644,000 balance in this account at the end of 2011 is as follows:
|
Date
|
Transaction
|
Amount
|
|
2/3/2011
|
State incorporation fees and legal costs rlated to organizing the corporation
|
$7,000
|
|
3/1/2011
|
Fire insurance premium for three-year period
|
6,000
|
|
3/15/2011
|
Purchased a copyright
|
20,000
|
|
4/30/2011
|
Research and development costs
|
40,000
|
|
6/15/2011
|
Legal fees for filing a patent on a new product resulting from an R&D project
|
3,000
|
|
9/30/2011
|
Legal fee for successful defense of patent developed above
|
12,000
|
|
1/13/2011
|
Enteres into a 10-year franchise agreement with franchisor
|
40,000
|
|
Various
|
Advertising costs
|
16,000
|
|
11/30/2011
|
Purchase of all of the outstanding common stock of Stiltz Corp.
|
500,000
|
|
Total
|
$644,000
|
The total purchase price of the Stiltz Corp. stock was debited to this account the fair values of Stiltz Corp.'s assets and liabilities on the date of the purchase were as follows:
|
Receivables
|
$100,000
|
|
Equipment
|
350,000
|
|
Patent
|
150,000
|
|
Total assets
|
$600,000
|
|
Note payable assumed
|
(220,000)
|
|
Fair value of net assets
|
$380,000
|
Required: Prepared the necessary journal entries to clear the intangible asset account and to set up accounts for separate intangible assets, other types of assets, and expenses indicated by the transactions.
Problem 2 -
Case A. Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $12,000 (origianl cost of $28,000 less accumulated depreciation of $16,000) and fair value of $9,000. Kapono paid $20,000 cash to complete the exchange. The exchange has commercial substance.
Required: What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor?
Repeat required 1 assuming that the fair value of the old tractor is $14,000 instead of $9,000.
Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of $500,000 and a fair value of $700,000. Kapono paid $50,000 cash to complete the exchange. The exchange has commercial substance.
Required: What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land?
Repeat requirement 1 assuming that the fair value of the farmland given is $400,000 instead of $700,000.
Repeat requirement 1 assuming that the exchange lacked commercial substance.