Reference no: EM131595558

Question - Intangibles

Freitas Corporation was organized early in 2016. The following expenditures were made during the first few months of the year:

Attorney's fees in connection with the organization of the corporation	$12,000
State filing fees 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.

Question - Goodwill

On March 31, 2016, 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.

Question - Goodwill

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.

Question - Interest capitalization

On January 1, 2016, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2017. The company borrowed $1,500,000 at 8% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2016:

$5,000,000, 12% bonds

$3,000,000, 8% long-term note

Construction expenditures incurred during 2016 were as follows:

January 1	$600,000
March 31	1,200,000
June 30	800,000
September 30	600,000
December 31	400,000

Required: Calculate the amount of interest capitalized in 2016 for the building using the specific interest method.