Chapter 12 Solutions

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EXERCISE 12-1 (15–20 minutes)

(a) 10, 13, 15, 16, 17, 19, 23

(b) 1. Long-term investments in the balance sheet. 2. Property, plant, and equipment in the balance sheet. 3. Research and development expense in the income statement. 4. Current asset (prepaid rent) in the balance sheet. 5. Property, plant, and equipment in the balance sheet. 6. Research and development expense in the income statement. 7. Charge as expense in the income statement. 8. Operating losses in the income statement. 9. Charge as expense in the income statement. 11. Not recorded; any costs related to creating goodwill incurred internally must be expensed. 12. Research and development expense in the income statement. 14. Research and development expense in the income statement. 18. Research and development expense in the income statement. 20. Research and development expense in the income statement. 21. Long-term investments, or other assets, in the balance sheet. 22. Expensed in the income statement.

EXERCISE 12-4 (15–20 minutes)

1. Palmiero should report the patent at $900,000 (net of $600,000 accumulated amortization) on the balance sheet. The computation of accumulated amortization is as follows.

Amortization for 2010 and 2011 ($1,500,000/10) X 2 | $300,000 | 2012 amortization: ($1,500,000 – $300,000) ÷ (6 – 2) | 300,000 | Accumulated amortization, 12/31/12 | $600,000 |

2. Palmiero should amortize the franchise over its estimated useful life. Because it is uncertain that Palmiero will be able to retain the franchise at the end of 2020, it should be amortized over 10 years. The amount of amortization on the franchise for the year ended December 31, 2012, is $35,000: ($350,000/10).

3. These costs should be expensed as incurred. Therefore $275,000 of organization expense were reported in income for 2010 with none…...

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