Far #9

Atlantis Travel, Inc., internally developed computer software for its reservations system. Atlantis correctly capitalized $136,500 for coding, testing, and payroll costs related to this software. The project was completed during the year and is expected to have a 5-year useful life. The CFO wants to know the correct way to amortize capitalized costs incurred from producing computer software. Which section of the authoritative guidance best describes the correct way to amortize capitalized costs incurred from producing computer software ? Enter your response in the answer fields below. Guidance on correctly structuring your response appears above and below the answer fields. Unless specifically requested, your response should not cite implementation guidance.

FASB ASC 350-40-35-4

Baker Software, Inc., specializes in providing accounting and sales software for small bakeries. In 20X7, two products, Bakery+ Checkout Scanner and Bakery Dollars and Cents, were internally developed and released for sale to the public. Bakery+ Checkout Scanner is technology that was patented, and Bakery Dollars and Cents is a new accounting software. Documentation of the product development can be found in the Exhibits tab. After an initial review of the documentation, a staff associate prepared the following notes to the financial statements. Erica Meyer, the CFO, has instructed you to review the documentation and revise the notes, correcting any errors. To revise the document, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the document, select [Original Text] from the list. If removal of the underlined text is the best revision to the document, select [Delete Text] from the list if available.

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Fish Monger is a regional chain of seafood retailers serving the Southeast U.S. Part of its marketing efforts included obtaining customer lists from a respected gourmet cooking publication that has served the same region for the past 2 years. This is a valuable resource for which Fish Monger has agreed to pay $5,000,000 cash at the beginning of Year 1. Fish Monger believes it will have obtained name recognition within 5 years of being active in the market. Accordingly, the list will have an economic life of 5 years. Additionally, Fish Monger expects to be able to sell the data for $500,000 at the end of this time to other business entrants into the region. You are recording the appropriate entries regarding the customer list. To prepare each required journal entry: Click on a cell in the Account Name column and select from the option list the appropriate account. An account may be used once, more than once, or not at all. Enter the corresponding debit or credit amount in the associated column. Round all amounts to the nearest whole number. Not all rows in the table might be needed to complete each journal entry. If no journal entry is needed, check the "No entry required" box at the top of the table as your response. 1. Record the journal entries for each acquisition of the customer list. 2. Record any necessary adjusting journal entry at the end of Year 1 for the appropriate accounting treatment of the customer list.

1. Customer list $5,000,000 Cash $5,000,000 2. Amortization expense $900,000 Accumulated amortization $900,000

For each of the independent situations described below, prepare Company A's year-end adjusting entries required for the correct presentation of the December 31, Year 3, financial statements. To prepare each required journal entry: Click on a cell in the Account Name column and select from the option list the appropriate account. An account may be used once, more than once, or not at all. Enter the corresponding debit or credit amount in the associated column. Round all amounts to the nearest whole number. Not all rows in the table might be needed to complete each journal entry. If no journal entry is needed, check the "No entry required" box at the top of the table as your response. 1. Company A paid $54,000 to renew its property insurance policy for 3 years on July 1, Year 2, the effective date of the policy. No journal entry was recorded regarding the insurance policy during Year 3. 2. Company A paid $24,000 for a 2-year property insurance policy on April 1, Year 1, the effective date of the policy. On April 1, Year 3, the company renewed the policy for an additional 2-year period for $36,000. Under Company A's accounting system, all insurance premiums paid are recognized (debited) as insurance expense. The only journal entry that was recorded during Year 3 regarding the property insurance was the payment of the premium for the renewal of the policy. 3. Company A paid $36,000 for its property insurance policy for 3 years on January 1, Year 3, the effective date of the policy. The bookkeeper capitalized the amount of the insurance premium paid as part of the property cost. The property is in use from January 1, Year 1. This is the only journal entry that was recorded regarding the insurance policy during Year 3.

1. Insurance expense $18,000 Prepaid insurance expense $18,000 2. Prepaid insurance expense $19,500 Insurance expense $19,500 3. Prepaid insurance expense $24,000 Insurance expense 12,000 Property $36,000

For each situation below, record the appropriate journal entry for Richter Corp. Assume that Richter (1) uses the straight-line method for amortization and depreciation, (2) records all amortization and deprecation on December 31 of each year, and (3) uses separate general ledger accounts to record accumulated amortization for each intangible asset. To prepare each required journal entry: Click on a cell in the Account Name column and select from the option list the appropriate account. An account may be used once, more than once, or not at all. Enter the corresponding debit or credit amount in the associated column. Round all amounts to the nearest whole number. Not all rows in the table might be needed to complete each journal entry. If no journal entry is needed, check the "No entry required" box at the top of the table as your response. 1. April, 1 Year 1: Richter purchased a patent with a 10-year life for $50,000 from DD Co. DD incurred costs of $35,000 developing the patent. Prepare the journal entry, if any, to record the patent. 2. July 1, Year 1: Richter purchased scientific equipment used in product development studies. In addition to being used in the product development studies, the equipment can be used in the production of other products. The equipment cost $75,000 and the company paid an additional $4,000 for delivery. The equipment has an estimated useful life of 5 years. Prepare the journal entry, if any, to record the purchase of the equipment. 3. October 1, Year 1: Richter received an unfavorable judgment in defense of a trademark and paid $25,000 in fees to their law firm. Prepare the journal entry, if any, to record the legal fees. 4. December 31, Year 1: Prepare the journal entry, if any, to account for the patent purchased on April 1, Year 1. 5. December 31, Year 1: Prepare the journal entry, if any, to account for the scientific equipment purchased on July 1, Year 1. 6. December 31, Year 1: Richter had previously recorded $300,000 of goodwill related to an acquisition. The entire goodwill was properly allocated to a consumer products reporting unit. At December 31, Year 1, the carrying amount of the reporting unit, including goodwill, was $780,000. The fair value of the reporting unit was $900,000. Prepare the journal entry, if any, to adjust the carrying amount of goodwill.

1. Patent $50,000 Cash $50,000 2. Equipment ($75,000 + $4,000) $79,000 Cash $79,000 3. Legal expense $25,000 Cash $25,000 4. Amortization expense $3,750 Accumulated amortization -- patent $3,750 5. Research and development expense $7,900 Accumulated depreciation $7,900 6. NO ENTRY REQUIRED

During Year 1, Custom Co. had the following transactions:On January 2, Custom purchased the net assets of Delta Co. for $360,000. The fair value of Delta's identifiable net assets was $172,000. Custom believes that, due to the popularity of Delta's consumer products, the life of the resulting goodwill is unlimited.On February 1, Custom purchased a franchise to operate a ferry service from the state government for $60,000 and an annual fee of 1% of ferry revenues. The franchise expires after 5 years. Ferry revenues were $20,000 during Year 1. Custom projects future revenues of $40,000 in Year 2, and $60,000 per annum for the 3 years thereafter.On April 5, Custom was granted a patent that had been applied for by Delta. During Year 1, Custom incurred legal costs of $51,000 to register the patent and an additional $85,000 to successfully prosecute a patent infringement suit against a competitor. Custom estimates the patent's economic life to be 10 years. Custom's accounting policy is to amortize all intangible assets on the straight-line basis over the maximum period permitted by generally accepted accounting principles. Calculate the amounts of the expenses related to intangible assets that affect Custom's Year 1 income. Enter the appropriate amounts in the designated cells below. Enter all amounts as positive values. If no entry is necessary, enter a zero (0). ItemAmount1. Goodwill2. Franchise3. Patent4. Franchise Fee5. Total

1. 0 2. 11000 3. 10200 4. 200 5. 21400

During Year 1, Company A incurred costs to develop, produce and market a computer software product to be sold or leased. For each of the costs indicated below, select from the option list provided the appropriate recognition in Company A's Year 1, financial statements. Select from the option list provided the appropriate recognition for each cost below. Each choice may be used once, more than once, or not at all. CostRecognition1. Costs incurred for duplicating the computer software2. Costs of maintenance and customer support3. Costs of producing product masters4. Research and development costs5. Costs incurred for training materials from the product masters6. Costs incurred for coding and testing to establish technological feasibility7. Costs incurred for coding and testing after establishment of technological feasibility

1. Included in inventory 2. Charged to expense 3. Capitalized as computer software costs 4. Charged to expense 5. Included in inventory 6. Charged to expense 7. Capitalized as computer software costs

For each of the following independent situations described below, calculate the amount of impairment loss that should be recognized in Company A's December 31, Year 4, financial statements. Enter in the designated cells the applicable dollar value. If no impairment loss is recognized, enter a zero (0). Enter all amounts as positive values. SituationImpairment loss1. On December 31, Year 4, Company A estimates that the carrying amount of its patent may not be recoverable. The patent was purchased on January 1, Year 1, for $50,000, and its useful life is 10 years. On January 1, Year 3, Company A paid $24,000 in legal fees for a successful defense of the patent. The sum of the undiscounted expected future cash flows from the patent and the patent's fair value on December 31, Year 4, are $40,000 and $35,000, respectively.2. Company A bought a trademark 4 years ago on January 1 for $80,000. The useful life of the trademark is indefinite, and no impairment loss was previously recognized. On December 31, Year 4, the company determined that it is necessary to perform the quantitative impairment test for the trademark. The fair value of the trademark on that date was $75,000.3. On January 1, Year 2, Company A purchased a franchise with a finite useful life of 5 years for $60,000. On December 31, Year 4, the company estimates that the carrying amount of the franchise may not be recoverable. The sum of the undiscounted expected future cash flows from the franchise and the franchise's fair value on December 31, Year 4, are $25,000 and $22,000, respectively.

1. 13000 2. 5000 3. 0

During Year 1, Broca Co. had the following transactions:On January 2, Broca purchased all of the identifiable net assets of Amp Co. for $360,000. The fair value of Amp's identifiable net assets was $172,000. Broca believes that, due to the popularity of Amp's consumer products, the life of the resulting goodwill is unlimited.On February 1, Broca purchased a franchise to operate a ferry service from the state government for $60,000 and an annual fee of 1% of ferry revenues. The franchise expires after 5 years. Ferry revenues were $20,000 during Year 1. Broca projects future revenues of $40,000 in Year 2, and $60,000 per annum for the 3 years thereafter.On April 5, Broca was granted a patent that had been applied for by Amp. During Year 1, Broca incurred legal costs of $51,000 to register the patent and an additional $85,000 to successfully prosecute a patent infringement suit against a competitor. Broca estimates the patent's economic life to be 10 years. Broca's accounting policy is to amortize all intangible assets on the straight-line basis over the maximum period permitted by generally accepted accounting principles, taking a full year's amortization in the year of acquisition. Enter the appropriate amounts in the designated cells below showing the intangible assets section of Broca's balance sheet at December 31, Year 1. Enter all amounts as positive values. If no entry is necessary, enter a zero (0). Balance sheet itemDecember 31 balance1. Goodwill2. Franchise3. Patent

1. 188000 2. 48000 3. 122400

Company A paid $500,000 for all of the outstanding common stock of Company B in a business combination initiated and completed on January 1, Year 3. On that date, the fair value of Company B's identifiable assets and liabilities were $720,000 and $260,000, respectively. Company B is treated as a reporting unit, and the entire amount of goodwill recognized in the business combination is assigned to it. On December 31, Year 4, the company determined that it is necessary to perform the quantitative impairment test for goodwill. No impairment loss of goodwill was previously recognized. On December 31, Year 4, the fair value of Company B was $585,000 and its carrying amount, including goodwill, was $600,000. Enter the appropriate amounts in the designated cells below. Enter all amounts as positive values. Round all amounts to the nearest dollar. If no entry is necessary, enter a zero (0). ItemAmount1. The goodwill recognized on the business combination day2. The carrying amount of goodwill on December 31, Year 4, before the impairment test3. The impairment loss, if any, recognized in the Year 4 income statement4. The carrying amount of goodwill on December 31, Year 4, after the impairment test

1. 40000 2. 40000 3. 15000 4. 25000

1. The costs of facilities acquired or constructed for R&D and having alternative future uses.2. Salaries of personnel engaged in R&D.3. The depreciation of equipment or facilities used in R&D.4. The costs of intangible assets purchased from others for a particular project and having no alternative future uses.5. Costs of intangible assets to be used in R&D activities that have alternative future uses but were acquired in a business combination.6. The portion of indirect costs that is allocated to R&D.7. The costs of equipment acquired for a particular project that has no alternative future uses.8. The costs of services performed by others in connection with the R&D activities of an entity.9. Costs of a tangible asset to be used in an R&D activity that has alternative future uses but was acquired as part of a group of assets. All other assets in the group have no alternative future uses.

1. Capitalize 2. Expense 3. Expense 4. Expense 5. Capitalize 6. Expense 7. Expense 8. Expense 9. Capitalize

This question addresses the costs of software to be (1) marketed as a separate product or as part of a product or process or (2) used internally. Select the appropriate circle to indicate whether each item should be capitalized or expensed. ItemCapitalizeExpense1. Costs of software for internal use incurred in the preliminary project stage.2. Costs of producing product masters for software to be marketed.3. R&D costs of software to be marketed.4. Unamortized costs of replaced software for internal use.5. Costs of purchased software to be marketed having an alternative use.6. The excess of unamortized cost over net realizable value of software to be marketed.7. Costs of software for internal use incurred in the application development stage.8. Costs of software to be marketed incurred when the product is available for general release.

1. Expense 2. Capitalize 3. Expense 4. Expense 5. Capitalize 6. Expense 7. Capitalize 8. Expense

A public manufacturing company, Blue Chemical, is engaged in various Research and Development (R&D) projects throughout Year 2 for its new developmental plastics, as well as various projects performed on behalf of clients. Your task is to categorize the cost based on the related document for the proper accounting treatment. For each item listed below, review the relevant invoice or document and any additional notes, and select the appropriate accounting treatment from the option list provided. Choose only one accounting treatment per document. An accounting treatment may be used once, more than once, or not at all. DocumentAccounting treatment1. Interoffice memorandum #12. Interoffice memorandum #23. Lab Services, Inc., invoice #1004. Lab Services, Inc., invoice #1505. Green Tree Consulting invoice #33996. Chemical Machines Co. invoice #A257. Green Tree Consulting invoice #36008. Research Construction, Ltd., invoice #96C

1. Expense immediately as R&D expense 2. Expense immediately as operating expense 3. Expense immediately as operating expense 4. Expense immediately as R&D expense 5. Expense immediately as R&D expense 6. Capitalize and include depreciation in R&D expense 7. Expense immediately as operating expense 8. Expense immediately as R&D expense

For each independent situation below, determine the effect, if any, on Company AZ's December 31, Year 6, financial statements. Select the appropriate effect from the option list provided. Each choice may be used once, more than once, or not at all. SituationEffect1. During Year 6, AZ spent $100,000 on labor and materials to produce a prototype model of a new product.2. On December 31, Year 6, AZ purchased for $150,000, on credit, equipment that can be used for AZ's current R&D project and also for other future projects.3. On December 31, Year 6, AZ purchased for $165,000, on credit, equipment that can be used for AZ's current R&D project only.4. During Year 6, AZ spent $50,000 on quality control during commercial production.5. During Year 2, AZ recognized an impairment loss on goodwill. At the end of Year 6, the company concluded that the fair value of the reporting unit in which goodwill was impaired is greater than its carrying amount.6. During Year 4, the company recognized an impairment loss on an intangible asset with a useful life of 18 years. At the end of Year 6, the company estimates that the fair value of the intangible asset is greater than its carrying amount.7. During Year 6, AZ spent $20,000 on market research related to its existing major product.

1. Increase research and development (R&D) expenses. 2. Increase assets. 3. Increase research and development (R&D) expenses. 4. Increase expenses other than research and development 5. No effect 6. No effect 7. Increase expenses other than research and development

During Year 5, Broca Co. had the following transactions: On January 2, Broca acquired 100% of the voting interests of Amp Co. for $360,000. The acquisition-date fair value of Amp's acquired net assets (the net of the amounts assigned to assets acquired and liabilities assumed) was $172,000. Broca believes that, due to the popularity of Amp's consumer products, the life of the resulting goodwill is 15 years. On February 1, Broca purchased a franchise to operate a ferry service from the state government for $60,000 and an annual fee of 1% of ferry revenues. The franchise expires after 5 years. Ferry revenues were $20,000 during Year 5. Broca projects future revenues of $40,000 in Year 6 and $60,000 per annum for the following 3 years. On April 5, Broca was granted a patent that had been applied for by Amp. During Year 5, Broca incurred legal costs of $51,000 to register the patent and an additional $85,000 to successfully prosecute a patent infringement suit against a competitor. Broca estimates the patent's economic life to be 10 years. When Broca purchased Amp's net assets, it properly did not assign an amount to the possible grant of a patent. Broca incurred organization costs of $98,000 for incorporation, state and local licensing fees and permits, training of new employees, feasibility studies, and attorneys' and accountants' fees. At December 31, Year 5, Broca had prepaid rent (1 year) and insurance (2 years) balances of $60,000 and $24,000, respectively. Broca's accounting policy is to amortize intangible assets with finite useful life on the straight-line basis taking a full year's amortization in the year of acquisition. Using the information above, enter in the designated cells below the amounts to be recorded on the intangible assets section of the balance sheet for Broca Co. Enter all values as positive whole numbers. Balance sheet itemCalculated amountGoodwill: Cash paid Less: Fair value of net assets Goodwill Less: Amortization Balance 12/31/Year 5Franchise: Franchise Less: Amortization Balance 12/31/Year 5Patent: Legal costs Less: Amortization Balance 12/31/Year 5

Goodwill: Cash paid $360,000 Less: Fair value of net assets 172,000 Goodwill 188,000 Less: Amortization 0 Balance 12/31/Year 5 $188,000 Franchise: Franchise $ 60,000 Less: Amortization 12,000 Balance 12/31/Year 5 $ 48,000 Patent: Legal costs $136,000 Less: Amortization 13,600 Balance 12/31/Year 5 $122,400