Cost Accounting Chapter 12 Homework Solutions

Packages-2-Go has two divisions, air express and ground service, that share the common costs of the company’s communications network, which are $5,200,000 a year. You have the following information about the two divisions and the common communications network: Calls (thousands) Time on Network (hours) Air express 151,000 121,000 Ground service 95,000 494,000 Required: (a) What is the communications network cost that is charged to each division if the number of calls is used as the allocation basis? (Do not round intermediate calculations. Round final answers to the nearest dollar amounts.) Division Network Cost Air express 1,023,089 Ground service 4,176,911 Explanation: (a) Number of calls basis. Air Express: 151,000 × $5,200,000 = $3,191,870 151,000 + 95,000 Ground Service: 95,000 × $5,200,000 = $2,008,130 151,000 + 95,000 Check: $5,200,000 = $3,191,870 + $2,008,130 (b) Time on Network

CHAPTER 12 Intangible Assets ANSWERS TO QUESTIONS 1. The two main characteristics of intangible assets are: (a) they lack physical substance. (b) they are not a financial instrument. 3. Limited-life intangibles should be amortized by systematic charges to expense over their useful life. An intangible asset with an indefinite life is not amortized. 4. When intangibles are created internally, it is often difficult to determine the validity of any future service potential. To permit deferral of these types of costs would lead to a great deal of subjectivity because management could argue that almost any expense could be capitalized on the basis that it will increase future benefits. The cost of purchased intangibles, however, is capitalized because its cost can be objectively verified and reflects its fair value at the date of acquisition. 8. This trademark is an indefinite life intangible and, therefore, should not be amortized. 13. Goodwill is recorded only when it is acquired by purchase. Goodwill acquired in a business combination is considered to have an indefinite life and therefore should not be amortized, but should be tested for impairment on at least an annual basis. 18. The amount of goodwill impaired is $40,000, computed as follows: Recorded goodwill. ................................................. $400,000 Implied goodwill. .................................................... (360,000 ) Impaired goodwill. .................................................. $ 40,000 *27. Under the percent of revenue approach, $900,000 $4,500,000 X $2,000,000 $2,000,000 + $8,000,000       would be reported; under the straight-line approach, $1,125,000 would be reported. Because the straight-line approach is higher, $1,125,000 should be reported as amortization expense for this product.

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