E 12-16

a. The full amount $325,000 should be charged to the income statements as

R&D expense. An explanation of the R&D expenses should be provided in the
notes to the financial statements.
b. Research and development expense
110,000
Cash/Accounts payable
110,000
Patents

16,000
Cash/Accounts payable
16,000

Patents Amortization expense

Patents

3,200*
3,200

*(16,000/5 = 3,200)
c. Patents

47,200
Cash/Accounts payable
47,200

The cost of defending the patent of 47,200 will be capitalized.

The amount of patent remaining (16,000 3,200) = 12,800
+New expense of defending the patent
47,200
------------------------------------------------------------------------------Total amount to be amortized
60,000
/ Year remaining
8 years
-------------------------------------------------------------------------------Yearly amortization expense
7,500
Patents Amortization expense
Patents

7,500
7,500

d. The additional engineering and consulting cost incurred in 2015 to advance

the design of a product to manufacturing state total $60,000 is a Research &
Development cost. This R&D should be charged to income statement fully as
R&D expense in 2015.

P 12-5
a. Goodwill = Purchase price the fair value of the identifiable assets at the
time of purchase
= 3,000,000 2,750,000 = $250,000
b. No impairment loss needs to be recorded. The carrying value of Conchita
Division $1,650,000 is lower than fair market value $1,850,000.

c. Fair value of the Conchita Division

1,600,000
Carrying value of the division
1,650,000
Add: Increase in fair value of PP&E
150,000
Less: Goodwill
(250,000) (1,550,000)
---------------------------------------------------------------------------------Implied fair value of the goodwill
50,000
Less: Carrying value of the goodwill
(350,000)
-----------------------------------------------------------------------------------Impairment loss
(300,000)
d. Loss on impairment
Goodwill

$300,000
$300,000

The loss on impairment should be charge on income statements as a

separate line item before the subtotal income from continuing operations.