Week Two - Homework Exercises E10-5, E10-6 and E10-7, and E10-26;E10-5;Freitas Corporation was organized early in 2013. The following expenditures were made during the first few months of the year;Attorneys' fees in connection with the organization of the corporation $12,000;State filing fees and 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.;E10-6;On March 31, 2013, 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.;E10-7;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.;E10-26;In 2013, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures;Basic research to develop the technology $2,000,000;Engineering design work 680,000;Development of a prototype device 300,000;Acquisition of equipment 60,000;Testing and modification of the prototype 200,000;Legal and other fees for patent application on the new communication system 40,000;Legal fees for successful defense of the new patent 20,000;Total $3,300,000;The equipment will be used on this and other research projects. Depreciation on the equipment for 2013 is $10,000.;During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patents.;Managements contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized.
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