Problem 1
Bryant Company has a tangible asset which cost $620,000, has $200,000 of accumulated depreciation, and $50,000 salvage value. The future net cash flows undiscounted are $350,000, including the $50,000 salvage value. The future net cash flows discounted are $275,000, including the present value of the salvage value. The fair market value of the asset is $290,000.
Required: If there is an impairment loss, prepare the necessary journal entry and show supporting computations. If no journal entry is required write the word "None" and discuss why there is no impairment loss, also showing supporting computations.
Problem 2
Sherwood Co. purchased a patent from Anderson Co. for $150,000 on July 1, 2016. Amortization of intangibles begins on the date of acquisition. Expenditures of $20,000 for successful litigation in defense of the patent were paid on July 1, 2018, by Sherwood Co. On October 1, 2018 Sherwood Co. spent $12,000 for further development of the machine associated with the patent. On July 1, 2015, Sherwood Co. estimated the useful life of the patent to be 5 years from the date of acquisition; the legal life of the patent on the date of acquisition was 10 years. On January 1, 2019 Sherwood changed the remaining useful life of the patent to 4 years. Sherwood Co. is on a calendar year and prepares adjusting journals on December 31, or on the date there is a change in the carrying amount of the patent (other than by an adjusting journal entry).
Required: Compute the carrying value of the patent as of December 31, 2018 after the adjusting entry for amortization. Sherwood Co. amortizes intangibles using the straight-line method.