Problem 1 Â IntangiblesOn January 1, 2011, Kramer Corp spent $250,000 developing a patent and$90,000 in legal fees to secure the patent. Kramer estimated its productivelife to be 15 years, although its legal life was 20 years. On January 1, 2012,Kramer spent $5,600 in legal fees in defense of the patent and won thesuit.On December 31, 2014, one of Kramer’s competitors developed a patent thatsignificantly rivaled Kramer’s product. Kramer’s CFO determined that thethe fair value of the patent is $66,000 and future expected cash flows fromKramer’s patent would be $63,000.Instructions1 How much is the book value of the patent at Kramer’s year end onDecember 31, 2012?2 What was the book value of the patent as of December 31, 2015?3 What journal entries, if any, did Kramer make on December 31, 2014?Problem 2 â ExchangesOn January 1, 2012, Wallace Company and Diggs Company agree to exchangeassets with the following characteristics:WallaceCompanyDiggs Company$50,000$60,000Accumulated Depreciation30,00040,000Fair market value24,00030,000Original CostWallace Company has agreed to pay $6,000 cash to Diggs Company in theexchange.Instructions1 Assume that the exchange of assets has commercial substance.Make the necessary journal entries to record the exchange forboth parties.2 Assume that the exchange of assets does not have commercial substance. Make the necessary journal entries to record theexchange for both parties.Problem 3 â Capitalization of InterestEarly in 2011, Parker Corp. engaged Gable, Inc. to design and constructa complete modernization of Parker’s manufacturing facility. Constructionbegan on June 1, 2011 and was completed on December 31, 2011.Parker made the following payments to Gable, Inc. during 2011:PaymentDateAmountJune 1, 2011$2,400,000September 30, 20117,800,000December 31, 20114,000,000To help finance the construction, Parker issued the following during 2011:* $1,500,000, 10Âyear, 10 percent note payable issued on June 1, 2011, with interest payable annually on May 31.Other debt held by the company during 2011 was as follows:* A $4,000,000, 12Âpercent note payable dated January 1, 2008, due January 1, 2016, with interest payable annually on January 1.* A 30Âday, 9 percent loan dated July 1, 2011, in the amount of $1,000,000Instructions1 Compute the weightedÂaverage accumulated expenditure qualifyingfor capitalization of interest cost.2 Compute the avoidable interest.3 The building has a salvage value of $800,000 and a useful lifeof 50 years. What is the book value of the building as of 12/31/2012?
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