Presented below is information related to copyrights owned by Ivanhoe Company at December 31, 2020.
Cost $8,620,000
Carrying amount 4,300,000
Expected future net cash flows 4,180,000
Fair value 3,440,000
Assume that Ivanhoe Company will continue to use this copyright in the future. As of December 31, 2020, the copyright is estimated to have a remaining useful life of 10 years.
Required:
(a) Prepare the journal entry to record the impairment of the asset at December 31, 2020. The company does not use accumulated amortization accounts.(b) Prepare the journal entry to record amortization expense for 2021 related to the copyrights

A.

Impairment of Intangible Assets

Dr Loss on impairment 860,000

Cr Copyrights 860,000

B.

Dr Amortization expense 344,000

Cr Copyrights 344,000

Explanation:

Ivanhoe Company

Impairment of Intangible Assets

Recoverability test: If the sum of the expected future net cash flows is less or lower than the carrying amount of the asset, then an impairment has occurred.

Asset is Impaired

Expected future cash flow$4,180,000

Carrying value $4,300,000

$(120,000)

A.

Impairment of Intangible Assets

Dr Loss on impairment 860,000

Cr Copyrights 860,000

Fair value test:Carrying amount $ 4,300,000

Fair value 3,440,000

Loss on impairment$ (860,000)

B.

Dr Amortization expense 344,000

Cr Copyrights 344,000

Carrying amount$3,440,000

Useful life ÷10 years

Amortization per year$ 344,000

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

answer; ( prices are sticky);