Nutek,
Inc., holds a patent for the Full Service™ handi-plate, which the company
described as “a patented plastic buffet plate that allows the user to hold
both a plate and cup in one hand” and that “has a multitude of uses including
social gatherings such as backyard barbecues, buffets, picnics, and parties of
any kind.” (No, we’re not making this up.) Nutek also purchased a patent for
$1,009,000 for “a specialty line of patented switch plate covers and outlet
plate covers specifically designed to light up automatically when the power
fails.” Assume the switch plate patent was purchased January 1, 2009, and it
is being amortized over a period of 14 years. Assume Nutek does not use an
accumulated amortization account but instead charges amortization directly
against the intangible asset account.
|
Requirement 2:
|
Give
the journal entries to record the purchase and amortization of the switch
plate patent in 2009. (Round your answers to the
nearest dollar amount. Omit the "$" sign in your response.)
|
Event
|
General
Journal
|
Debit
|
Credit
|
a
|
Patent
|
|
|
|
Cash
|
|
|
|
|
|
|
b
|
Amortization expense
|
|
|
|
Patent
|
|
|
|
Requirement 3:
|
After
many months of unsuccessful attempts to manufacture the switch plate covers,
Nutek determined the patent was significantly impaired and its book value on
January 1, 2010, was written off. Describe the financial statement effects of
accounting for the asset impairment and give the journal entry to record the
impairment. (Round your answers to the nearest
dollar amount. Omit the "$" sign in your response.)
|
Event
|
General
Journal
|
Debit
|
Credit
|
a
|
Impairment loss
|
|
|
|
Patent
|
|
|
|
Explanation:
Amortization expense = $1,009,000
× 1/14 = $72,071
|
The
impairment appears on the income statement in the form of the $936,929 loss
at the end of 2010. This loss would be included with operating expenses
before the Income from Operations subtotal. The patent would no longer
appear on the balance sheet.
|
No comments:
Post a Comment