SSK Co
Subject:AccountingPrice:2.86 Bought3
SSK Co., organized in 2020, provided you with the following information. 1. Purchased a license for $20,000 on July 1, 2020. The license gives SSK exclusive rights to sell its services in the tri-state region and will expire on July 1, 2028. 2. Purchased a patent on January 2, 2021, for $40,000. It is estimated to have a 5-year life. 3. Costs incurred to develop an exclusive Internet connection process as of June 1, 2021, were $45,000. The process has an indefinite life. 4. On April 1, 2021, SSK purchased a small circuit board manufacturer for $350,000. Goodwill recorded in the transaction was $90,000. 5. On July 1, 2021, legal fees for successful defence of the patent purchased on January 2, 2021, were $11,400. 6. Research and development costs incurred as of September 1, 2021, were $75,000. Instructions a. Prepare the journal entries to record all the entries related to the patent during 2021. b. At December 31, 2021, an impairment test is performed on the license purchased in 2020. It is estimated that the net cash flows to be received from the license will be $13,000, and its fair value is $7,000. Compute the amount of impairment, if any, to be recorded on December 31, 2021. c. What is the amount to be reported for intangible assets on the balance sheet at December 31, 2020? At December 31, 2021?
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Attached herewith is the detailed computation for intangible assets, impairment loss and journal entries. There is also a brief explanation with regards to the total intangible assets on Dec.31,2020. Those assets that has an indefinite life are not being amortized but rather tested only for impairment. So to get the impairment loss, just simply deduct carrying amount with the recoverable amount. Recoverable amount is the higher between value in use( net cash flows) and fair value lest cost of disposal. In this case we use $13,000 net cash flows because it is higher than the fair value.Once the asset is impaired, amount to be carried in the balance sheet equals to its recoverable amount.
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