Bailey Company was formed in January 2011 and is preparing its financial statements under GAAP for the

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Bailey Company was formed in January 2011 and is preparing its financial statements under GAAP for the first time at the end of 2013. Its general ledger at December 31, 2013, includes the following assets:
Patent ..............................................$120,000
Copyright ...........................................140,000
Trade name .........................................150,000
Computer software .................................90,000
Start-up costs ........................................30,000
Intellectual capital .................................150,000
Goodwill .............................................90,000
As the recently hired accountant for Bailey, you have been asked to make sure that the company's accounting for intangible assets follows GAAP. Based on your investigation, you determine the following:
• The patent acquired in January 2013 has an expected life of 15 years and no residual value, and it will generate approximately equal benefits each year.
• Bailey will use the copyright and trade name for the foreseeable future.
• The computer software was purchased in January 2013 and is used in the Bailey's 20 offices around the country.
It is expected to be replaced with new software at the beginning of 2015.
• Bailey previously capitalized the expected value of its ''human resources'' as intellectual capital, with a corresponding increase in additional paid-in capital.
• The trade name and goodwill arose from an acquisition of a subsidiary company at the end of 2012. Because of a significant adverse change in the market, you decide that both assets are impaired. You estimate that the fair value of the trade name is $50,000. The subsidiary company, which qualifies as a reporting unit, has a book value of $500,000, including the goodwill of $90,000. You estimate that the subsidiary's fair value is $300,000, of which $250,000 is allocated to its identifiable assets and liabilities.
Required:
Assume no adjusting entries have been made. Prepare journal entries to provide the correct information under GAAP at the end of 2013.
Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
Intangible Assets
An intangible asset is a resource controlled by an entity without physical substance. Unlike other assets, an intangible asset has no physical existence and you cannot touch it.Types of Intangible Assets and ExamplesSome examples are patented...
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...
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Intermediate Accounting Reporting and Analysis

ISBN: 978-1111822361

1st edition

Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach

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