Data related to the acquisition of timber rights and intangible assets during th

Question

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 $1,406,160 on February 22. The stand of timber is estimated at 5,859,000 board feet. During the current year, 1,145,800 board feet of timber were cut and sold. B. On December 31, the company determined that $3,522,000 of goodwill was impaired. C. Governmental and legal costs of $7,194,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 10 years. Amortization is to be for three-fourths of a year. 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. Refer to the Chart of Accounts for exact wording of account titles.

Explanation / Answer

1.    Determine the amount of the amortization, depletion, or impairment for the current year :

Amortization = Governmental and legal costs of $7,194,000 were incurred on April 3 in obtaining a patent with an estimated economic life of 10 years.

=$7194000 /10 year * 3/4 year

= $539550

  Depletion = purchase amount / total estimated number of units * number of units sold

   = 1406160 / 5859000 * 1145800

   = 274992

  Imapairment = 3522000

2. journal entry:

Depletion Expense Dr. $274992

To Assets $274992

Loss on impairment Dr. $3522000

To assets $3522000

Amortization expenses entry:

Amortization Expenses Dr.$539550

To Legal Fees $539550

(Being legal cost amortised for curretn year)

Note:-    At time of legal cost incurred on 3 april

   Legal fees Dr. $7194000

   To Cash $7194000

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