Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:
a. Timber rights on a tract of land were purchased for $1,600,000 on February 22. The stand of timber is estimated at 5,000,000 board feet. During the current year, 1,100,000 board feet of timber were cut and sold.
b. On December 31, the company determined that $3,750,000 of goodwill was impaired.
c. Governmental and legal costs of $6,600,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 12 years. Amortization is to be for three-fourths of a year.
Instructions
1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items.
2. Journalize the adjusting entries required to record the amortization, depletion, or impairment for each item.
Answer:
1. a. $1,600,000 ÷ 5,000,000 board feet = $0.32 per board foot;
1,100,000 board feet × $0.32 per board foot = $352,000
b. Loss from impaired goodwill, $3,750,000
c. $6,600,000 ÷ 12 years = $550,000;
3/4 of $550,000 = $412,500
2. a. Dec. 31 Depletion Expense 352,000
Accumulated Depletion352,000
Depletion of timber rights.
b. Dec. 31 Loss from Impaired Goodwill 3,750,000
Goodwill3,750,000
Impaired goodwill.
c. Dec. 31 Amortization Expense—Patents 412,500
Patents412,500
Patent amortization.