AC301 A3

Brief Exercise 12-2

Celine Dion Corporation purchases a patent from Salmon Company on January 1, 2014, for $54,050. The patent has a remaining legal life of 16 years. Celine Dion feels the patent will be useful for 10 years. Assume that at January 1, 2016, the carrying amount of the patent on Celine Dion’s books is $43,240. In January, Celine Dion spends $27,800 successfully defending a patent suit. Celine Dion still feels the patent will be useful until the end of 2023. Prepare the journal entries to record the $27,800 expenditure and 2016 amortization.  (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
(To record expenditure of patents)
(To record amortization expense)

Brief Exercise 12-5

On September 1, 2014, Winans Corporation acquired Aumont Enterprises for a cash payment of $700,130. At the time of purchase, Aumont’s balance sheet showed assets of $605,090, liabilities of $199,950, and owners’ equity of $405,140. The fair value of Aumont’s assets is estimated to be $818,000. Compute the amount of goodwill acquired by Winans.

Value assigned to goodwill

$

Problem 12-2

Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows.

Date		Activity		Cost
2005–2006		Research conducted to develop precipitator		$382,720
Jan. 2007		Design and construction of a prototype		88,080
March 2007		Testing of models		56,560
Jan. 2008		Fees paid engineers and lawyers to prepare patent
		application; patent granted June 30, 2008		87,210
Nov. 2009		Engineering activity necessary to advance the design
		of the precipitator to the manufacturing stage		82,710
Dec. 2010		Legal fees paid to successfully defend precipitator patent		56,560
April 2011		Research aimed at modifying the design of the
		patented precipitator		58,180
July 2015		Legal fees paid in unsuccessful patent infringement suit
		against a competitor		47,780

Fields assumed a useful life of 17 years when it received the initial precipitator patent. On January 1, 2013, it revised its useful life estimate downward to 5 remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1, and no amortization for the year if the cost is incurred after June 30. The company’s year ends December 31. Compute the carrying value of patent No. 758-6002-1A on each of the following dates:

(a)		December 31, 2008		$
(b)		December 31, 2012		$
(c)		December 31, 2015		$
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