Question

Wember Company acquired a subsidiary company on December 31, 2006 and recorded the cost of the intangible assets it acquired as follows:
Patent ............. $100,000
Tradename ........... 80,000
Goodwill .......... 150,000
The patent is being amortized by the straight-line method over an expected life of 10 years with no residual value. The tradename was considered to have an indefinite life.
Because of continued success of the subsidiary, Wember has not considered any of the intangibles to be impaired. However, because of a recession and technological changes in the subsidiary’s industry, Wember decides to review all its intangibles for impairment and record any adjustments at December 31, 2010.
Wember estimates that the fair value of the patent is $42,000. The company estimates the fair value of the tradename to be $90,000 but decides that it now has a limited life of five years. The subsidiary company has a book value of $700,000, including the goodwill of $150,000. Wember estimates that the fair value of the subsidiary company is $400,000, of which it allocates 80% to the identifiable assets and liabilities.

Required
1. Prepare journal entries for Wember Company to record the impairment of its intangible assets at December 31, 2010.
2. Prepare journal entries for Wember Company to record the amortization expense for its intangibles at December 31, 2011.



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  • CreatedDecember 09, 2013
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