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devry acct305 week 2 homework

Week Two – Homework Exercises E10-5, E10-6 and E10-7, and E10-26

E10-5

Freitas Corporation was organized early in 2013. The following expenditures were made during the first few months of the year:

Attorneys’ fees in connection with the organization of the corporation $12,000

State filing fees and other incorporation costs 3,000

Purchase of a patent 20,000

Legal and other fees for transfer of the patent 2,000

Purchase of furniture 30,000

Pre-opening salaries 40,000

Total $107,000

Required: Prepare a summary journal entry to record the $107,000 in cash expenditures.

E10-6

On March 31, 2013, Wolfson Corporation acquired all of the outstanding common stock of Barney Corporation for $17,000,000 in cash. The book values and fair values of Barney’s assets and liabilities were as follows:

Book Value Fair Value

Current assets $6,000,000 $7,500,000

Property, plant, and equipment 11,000,000 14,000,000

Other assets 1,000,000 1,500,000

Current liabilities 4,000,000 4,000,000

Long-term liabilities 6,000,000 5,500,000

Required: Calculate the amount paid for goodwill.

E10-7

Johnson Corporation acquired all of the outstanding common stock of Smith Corporation for $11,000,000 in cash. The book value of Smith’s net assets (assets minus liabilities) was $7,800,000. The fair values of all of Smith’s assets and liabilities were equal to their book values with the following exceptions:

Book Value Fair Value

Receivables $1,300,000 $1,100,000

Property, plant, and equipment 8,000,000 9,400,000

Intangible assets 200,000 1,200,000

Required: Calculate the amount paid for goodwill.

E10-26

In 2013, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures:

Basic research to develop the technology $2,000,000

Engineering design work 680,000

Development of a prototype device 300,000

Acquisition of equipment 60,000

Testing and modification of the prototype 200,000

Legal and other fees for patent application on the new communication system 40,000

Legal fees for successful defense of the new patent 20,000

Total $3,300,000

The equipment will be used on this and other research projects. Depreciation on the equipment for 2013 is $10,000.

During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patents.

Managements contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized.

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