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Bizhelp, CPA
Category: Homework
Satisfied Customers: 5884
Experience:  Bachelors Degree and CPA with Accounting work experience
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Intangible assets may be internally generated or purchased

Customer Question

(TCO C) Intangible assets may be internally generated or purchased from another party. In either case, the cost that should be included in the initial valuation of the asset is an issue.
(a) Identify the typical costs included in the cash purchase of an intangible asset.
(b) Discuss how to determine the cost of an intangible asset acquired in a non-cash transaction.
(c) Describe how to determine the cost of several intangible assets acquired in a “basket purchase.” Provide a numerical example involving intangibles being acquired for a total price of $120,000.
(Points: 30)
2. (TCO C) It has been argued on the grounds of conservatism that all intangible assets should be written off immediately after acquisition. Discuss the accounting arguments against this treatment. (Points: 15)
3. (TCO D) Below are three independent situations.
1. In August, 2010 a worker was injured in the factory in an accident partially as the result of his own negligence. The worker has sued Wesley Co. for $800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250,000 to $500,000.
2. A suit for breach of contract seeking damages of $2,400,000 was filed by an author against Greer Co. on October 4, 2010. Greer's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $600,000 and $1,800,000. No amount within this range is a better estimate of potential damages than any other amount.
3. Quinn is involved in a pending court case. Peete’s lawyers believe it is probable that Quinn will be awarded damages of $1,000,000.
Discuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers.
(Points: 30)
4. (TCO D) Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co.
(a) On April 1, 2009, Quirk issued $500,000, 9% bonds for $537,868 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2019.
(b) On July 1, 2011 Quirk retired $150,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization. (Points: 30)
5. (TCO D) Cole, Inc., which owes Henry Co. $600,000 in notes payable with accrued interest of $54,000, is in financial difficulty. To settle the debt, Henry agrees to accept from Cole equipment with a fair value of $570,000, an original cost of $840,000, and accumulated depreciation of $195,000.
(a) Compute the gain or loss to Cole on the settlement of the debt.
(b) Compute the gain or loss to Cole on the transfer of the equipment.
(c) Prepare the journal entry on Cole's books to record the settlement of this debt.
(d) Prepare the journal entry on Henry's books to record the settlement of the receivable. (Points: 20)
Submitted: 6 years ago.
Category: Homework
Expert:  Bizhelp replied 6 years ago.

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