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Intermediate Accounting (Kieso)
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Short Answer

Question: Treasure Land Corporation incurred the following costs in 2017

Cost of laboratory research aimed at discovery of new knowledge

$120,000

Cost of testing in search for product alternatives

$100,000

Cost of engineering activity required to advance the design of a product to the manufacturing stage

$210,000

$430,000

Prepare the necessary 2017 journal entry or entries for Treasure Land.

Answer

Debiting R&D expense by $430,000 and crediting to cash account with the same amount.

See the step by step solution

Step by Step Solution

Step 1: Meaning of R&D Expense

R&D costs are directly related to the research and development of a company's goods or services and any intellectual property created in the process. R&D costs are often incurred when a firm is looking for and developing new goods or services.

Step 2: Journal Entry

Date

Particulars

Debit

Credit

Research and development Expense

$430,000

To Cash

$430,000

(Being entry made to record treasure land)

Most popular questions for Business-studies Textbooks

(Comprehensive Intangible Assets) Montana Matt’s Golf Inc. was formed on July 1, 2016, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in shopping malls. Magik plans to integrate the instructional business into his golf equipment and accessory stores. Magik paid $770,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $650,000 and liabilities of $200,000 (thus owners’ equity was $450,000). The fair value of Old Master’s assets is estimated to be $800,000. Included in the assets is the Old Master trade name with a fair value of $10,000 and copyright on some instructional books with a fair value of $24,000. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 40 years.

Instructions

  1. Prepare the intangible assets section of Montana Matt’s Golf Inc. on December 31, 2016. How much amortization expense is included in Montana Matt’s income for the year ended December 31, 2016? Show all supporting computations.
  2. Prepare the journal entry to record amortization expenses for 2017. Prepare the intangible assets section of Montana Matt’s Golf Inc. on December 31, 2017. (No impairments are required to be recorded in 2017.)
  3. At the end of 2018, Magilke is evaluating the results of the instructional business. Due to fierce competition from online and television (e.g., the Golf Channel), the Old Master reporting unit has been losing money. Its book value is now $500,000. The fair value of the Old Master reporting unit is $420,000. The implied value of goodwill is $90,000. Magik has collected the following information related to the company’s intangible assets.

Intangible Asset

Expected Cash Flows (undiscounted)

Fair value

Trade names

$ 9,000

$ 3,000

Copyrights

30,000

25,000

Prepare the journal entries required, if any, to record impairments on Montana Matt’s intangible assets. (Assume that any amortization for 2018 has been recorded.) Show supporting computations.

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