Ch 12 Assigned Homework Solutions EXERCISE 12 1 15 20 minutes a 10 13 15 16 17 19 23 b 1 Long term investments in the balance sheet 2 Property plant and equipment in the balance sheet 3 Research and development expense in the income statement 4 Current asset prepaid rent in the balance sheet 5 Property plant and equipment in the balance sheet 6 Research and development expense in the income statement 7 Charge as expense in the income statement 8 Operating losses in the income statement 9 Charge as expense in the income statement 11 Not recorded any costs related to creating goodwill incurred internally must be expensed 12 Research and development expense in the income statement 14 Research and development expense in the income statement 18 Research and development expense in the income statement 20 Research and development expense in the income statement 21 Long term investments or other assets in the balance sheet 22 Expensed in the income statement EXERCISE 12 8 10 15 minutes a Attorney s fees in connection with organization of the company 15 000 Costs of meetings of incorporators to discuss organizational activities State filing fees to incorporate Total organization costs 7 000 1 000 23 000 Drafting and design equipment 10 000 should be classified as part of fixed assets rather than as organization costs b Organization Expense 23 000 Cash Payables 23 000 EXERCISE 12 12 Net assets of Zweifel as reported 575 000 350 000 225 000 Adjustments to fair value Increase in land value 30 000 Decrease in equipment value 5 000 25 000 Net assets of Zweifel at fair value 250 000 Selling price 350 000 Amount of goodwill to be recorded 100 000 The journal entry to record this transaction is as follows Cash 100 000 Land 100 000 Building 200 000 Equipment 170 000 Copyright 30 000 Goodwill 100 000 Accounts Payable 50 000 Long term Notes Payable 300 000 Cash 350 000 PROBLEM 12 5 a Goodwill Excess of the cost of the division over the fair value of the identifiable assets 3 000 000 2 750 000 250 000 b No impairment loss is recorded because the fair value of Conchita 1 850 000 is greater than carrying value of the net assets 1 650 000 c Computation of impairment Implied fair value of goodwill Fair value of division less the carrying value of the division adjusted for fair value changes net of goodwill Fair value of Conchita division 1 600 000 Carrying value of division 1 650 000 Increase in fair value of PP E 150 000 Less Goodwill 250 000 1 550 000 d Implied fair value of goodwill 50 000 Carrying value of goodwill 250 000 Impairment loss 200 000 Loss on Impairment 200 000 Goodwill 200 000 This loss will be reported in income as a separate line item before the subtotal income from continuing operations