Exercise 10-5 (Algo) Intangibles [LO10-1]
In 2024, Bratten Fitness Company made the following cash purchases:
- The exclusive right to manufacture and sell the X-Core workout equipment from Symmetry Corporation for $212,000. Symmetry created the unique design for the equipment. Bratten also paid an additional $16,000 in legal and filing fees to attorneys to complete the transaction.
- An initial fee of $305,000 for a three-year agreement with Silver’s Gym to use its name for a new facility in the local area. Silver’s Gym has locations throughout the country. Bratten is required to pay an additional fee of $6,200 for each month it operates under the Silver’s Gym name, with payments beginning in March 2024. Bratten also purchased $412,000 of exercise equipment to be placed in the new facility.
- The exclusive right to sell Healthy Choice, a book authored by Kent Patterson, for $31,000. The book includes healthy recipes, recommendations for dietary supplements, and natural remedies. Bratten plans to display the book at the check-in counter at its new facility, as well as make it available online.
Required:
Prepare a summary journal entry to record expenditures related to initial acquisitions.
Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.
On March 31, 2024, Wolfson Corporation acquired all of the outstanding common stock of Barney Corporation for $18,100,000 in cash. The book values and fair values of Barney’s assets and liabilities were as follows:
| Book Value | Fair Value | |
| Current assets | $ 7,100,000 | $ 8,600,000 |
| Property, plant, and equipment | 12,100,000 | 15,100,000 |
| Other assets | 1,110,000 | 1,610,000 |
| Current liabilities | 5,100,000 | 5,100,000 |
| Long-term liabilities | 7,100,000 | 6,600,000 |
Required:
Calculate the amount paid for goodwill.
Exercise 10-21 (Static) FASB codification research [LO10-1, 10-6, 10-7, 10-8]
Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org) and select Basic View for free access. Determine the specific eight-digit Codification citation (XXX-XX-XX-X) that describes each of the following items:
- The disclosure requirements in the notes to the financial statements for depreciation on property, plant, and equipment.
- The criteria for determining commercial substance in a nonmonetary exchange.
- The disclosure requirements for interest capitalization.
- The elements of costs to be included as R&D activities.
Exercise 10-27 (Algo) Research and development [LO10-8]
Delaware Company incurred the following research and development costs during 2024:
| Salaries and wages for lab research | $ 420,000 |
| Materials used in R&D projects | 220,000 |
| Purchase of equipment | 920,000 |
| Fees paid to third parties for R&D projects | 340,000 |
| Patent filing and legal costs for a developed product | 67,000 |
| Salaries, wages, and supplies for R&D work performed for another company under a contract | 370,000 |
| Total | $ 2,337,000 |
The equipment has a seven-year life and will be used for a number of research projects. Depreciation for 2024 is $140,000.
Required:
Calculate the amount of research and development expense that Delaware should report in its 2024 income statement.
The Horstmeyer Corporation commenced operations early in 2024. A number of expenditures were made during 2024 that were debited to one account called intangible asset. A recap of the $207,500 balance in this account at the end of 2024 is as follows:
| Date | Transaction | Amount |
| February 3 | State incorporation fees and legal costs related to organizing the corporation | $ 8,500 |
| March 1 | Fire insurance premium for three-year period | 7,500 |
| March 15 | Purchased a copyright | 32,000 |
| April 30 | Research and development costs | 52,000 |
| June 15 | Legal fees for filing a patent on a new product resulting from an R&D project | 3,500 |
| September 30 | Legal fee for successful defense of patent developed above | 24,000 |
| October 13 | Entered into a 10-year franchise agreement with franchisor | 52,000 |
| Various | Advertising costs | 28,000 |
| Total | $ 207,500 |
Required:
Prepare the necessary journal entry 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.
Note: If no entry is required for a transaction/event, select “No journal entry required” in the first account field.