Presented below is information related to copyrights owned by Cullumber Company at December 31, 2020.

Cost $8,590,000
Carrying amount 4,430,000
Expected future net cash flows 4,190,000
Fair value 3,330,000

Assume that Cullumber Company will continue to use this copyright in the future. As of December 31, 2020, the copyright is estimated to have a remaining useful life of 10 years.
Required:
1) Prepare the journal entry to record the impairment of the asset at December 31, 2020. The company does not use accumulated amortization accounts.
2) Prepare the journal entry to record amortization expense for 2021 related to the copyrights.
3) The fair value of the copyright at December 31, 2021, is $3,490,000. Prepare the journal entry necessary to record the increase in fair value.

Question

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Respuesta :

andromache andromache · Answer 1 · 2020-05-07T15:08:45+02:00

Answer and Explanation:

The journal entries are shown below:

a) Journal entry for impairment of copyright :

On Dec 31, 2020

Loss on impairment A/c Dr. $110,000 ($4,430,000-$3,330,000)

To copyright $110,000

(being the loss on impairment is recorded)

b) Journal entry for amortization of copyright :

On Year 2021

Amortization expense A/c Dr. $333,000 ($3,330,000 ÷ 10 year)

To copyright A/c $333,000

(Being the amortization expense is recorded)

c) No journal entry will be required to record increase in copy right fair value