Once Miracle learned of the competing printer and adjusted the expected future cash flows from its original patent, was this asset impaired? If so, make the impairment adjusting entry. (Record debits first, then credits. Exclude explanations from any journal entries. For transactions that do not require an entry, make sure to select "No entry required" in the first cell in the "Accounts" column and leave all other cells blank.)

Question

Donavan Mckinney

Business

7 March, 08:43

Once Miracle learned of the competing printer and adjusted the expected future cash flows from its original patent, was this asset impaired? If so, make the impairment adjusting entry. (Record debits first, then credits. Exclude explanations from any journal entries. For transactions that do not require an entry, make sure to select "No entry required" in the first cell in the "Accounts" column and leave all other cells blank.)

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Rodolfo Rhodes · Answer 1

(a) Entry for purchase of patent:

Patent a/c debit $600,000.

To Cash / Bank A/c. $600,000.

(b) Amortisation : (legal protection for 20 years) >> 600,000/20 = 30,000 per annum

Amortisation expenses - Patents $30,000

To Patents account $30,000

(c) Impairment Loss on Patents ac. debit 270,000 (see calculations below)

To Patents account 270,000

(Value of patents at end of 4 years = 600000-120000=480,000)

Expected future value = 210,000

Impairment = 480,000-210,000=270,000