Journal Entries for Impairment of Intangible Assets
Patagonia Corp *Current Year Amortization Has Already Been Recorded

question 59

Essay

Journal entries for impairment of intangible assets
Patagonia Corp., a large, privately held company, is preparing its year-end entries. As senior accountant, you have been asked to prepare the entries related to the company's intangible assets.
Patagonia currently carries the following intangible assets* on its balance sheet:
$$\begin{array} { l l l } \text { Trade name } & 5125,000 & \text { net of accumulated amortization of } 575,000 \\\text { Patent } & \$ 126,000 & \text { net of accumulated amortization of } \$ 54,000 \\\text { Other intangiblec } & \$ 340,000 & \text { no amortization recorded } \\\text { Tredemark } & \$ 120,000 & \text { net of accumulated amortization of } \$ 30,000 \\& \$ 711,000 &\end{array}$$ *Current year amortization has already been recorded.
The following additional information is available:
After recent negative press releases relating to the technology that underlies the patent, the company has carried out a recoverability test that indicates that the patent's carrying value is higher than its undiscounted future net cash flows. The patent's fair value has now been estimated at $ 84,000.
The item classified as "Other intangibles" relates to research costs that the company incurred in the current year. According to a statement from the company's President, "The costs were incurred with the intention to gain new knowledge. At the moment we don't know exactly how to use this information, but we are confident that eventually we will be able to use it."
Instructions
Based on the information provided, prepare all journal entries that are required to adjust Patagonia's records as would be required under ASPE.

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Definitions:

Payment Amounts

The sums of money paid or to be paid for goods, services, or obligations.

Group Health Plans

Insurance plans that provide healthcare coverage to a group of members, typically employees of the same company or organization.

Third-Party Payer

A third-party payer is an entity (other than the patient or healthcare provider) that pays for healthcare services, often an insurance company or government program.