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ACC* - Accounting ACC* M115 Lecture Notes - Lecture 32: Patent Infringement, Intangible Asset, Operating Expense

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redminnow421
5 Oct 2020
School
CCC
Department
ACC* - Accounting
Course
ACC* - Accounting ACC* M115
Professor
Murphy

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Document Summary

7500: patents exclusive right issued by us patent office enables recipient to manufacture, If the intangible has a definite life, amortize cost over useful life. If life indefinite, do not allocate the cost. Cost for an intangible includes only the purchase price. Any costs incurred in developing the intangible are expensed as incurred. sell or control an invention for 20 years. The cost is the cash or cash equivalent price paid to acquire the patent. Legal costs an owner incurs to successfully defend a patent infringement are considered necessary to establish the validity of the patent. They are added to patent account and amortized over the remaining life. The cost of a patent should be amortized over its legal life of 20 years or useful life, whichever is shorter. Amortization expense is classified as an operating expense. sell an artistic work. Good for life of creator plus 70 years. Cost of copyright is cost of acquiring and defending it.

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Related Questions

P9-7B The intangible assets section of Time Company at December31, 2011, is presented below. Patent ($100,000 cost less $10,000amortization) $ 90,000 Copyright ($60,000 cost less $24,000amortization) 36,000 Total $126,000

The patent was acquired in January 2011 and has a useful life of10 years. The copyright was acquired in January 2008 and also has auseful life of 10 years. The following cash transactions may haveaffected intangible assets during 2012.

Jan. 2 Paid $45,000 legal costs to successfully defend thepatent against infringement by another company.

Jan - June Developed a new product, incurring $230,000 inresearch and development costs. A patent was granted for theproduct on July 1. Its useful life is equal to its legal life.

Sept. 1 Paid $125,000 to an Xgames star to appear in commercialsadvertising the company's products.The commercials will air inSeptember and October.

Oct. 1 Acquired a copyright for $200,000.The copyright has auseful life of 50 years.

Instructions (a) Prepare journal entries to record thetransactions above. (b) Prepare journal entries to record the 2012amortization expense for intangible assets. (c) Prepare theintangible assets section of the balance sheet at December 31,2012. (d) Prepare the note to the financials on Time's intangiblesas of December 31, 2012.

Question 1. 1. (TCO C) The cost of anintangible asset includes all of the following except(Points : 5)

purchase price.
legal fees.
other incidentalexpenses.
All of these areincluded.

Question 2. 2. (TCO C) Wriglee, Inc. went tocourt this year and successfully defended its patent frominfringement by a competitor. The cost of this defense should becharged to (Points : 5)

patents, and amortized overthe legal life of the patent.
legal fees, and amortized over5 years or less.
expenses of the period.
patents, and amortized overthe remaining useful life of the patent.

Question 3. 3. (TCO C) Purchased goodwillshould (Points : 5)

be written off as soon aspossible against retained earnings.
be written off as soon aspossible as an extraordinary item.
be written off by systematiccharges as a regular operating expense over the periodbenefited.
not be amortized.

Question 4. 4. (TCO C) Danks Corporationpurchased a patent for $450,000 on September 1, 2008. It had auseful life of 10 years. On January 1, 2010, Danks spent $110,000to successfully defend the patent in a lawsuit. Danks feels that asof that date, the remaining useful life is 5 years. What amountshould be reported for patent amortization expense for 2010?(Points : 5)

$103,000.
$100,000.
$94,000.
$78,000.

Question 5. 5. (TCO C) MaBelle Corporationincurred the following costs in 2010:

Acquisition of R & D equipment with a useful life of 4 yearsin R & D projects

$600,000

Start-up costs incurred when opening a new plant

140,000

Advertising expense to introduce a new product

700,000

Engineering costs incurred to advance a product to fullproduction stage

350,000



What amount should MaBelle record as research and developmentexpense in 2010? (Points : 5)

$500,000
$640,000
$950,000
$1,340,000

Question 6. 6. (TCO D) A liability forcompensated absences such as vacations, for which it is expectedthat employees will be paid, should (Points : 5)

be accrued during theperiod when the compensated time is expected to be used byemployees.
be accrued during the periodfollowing vesting.
be accrued during the periodwhen earned.
not be accrued unless awritten contractual obligation exists.

Question 7. 7. (TCO D) Under what conditions isan employer required to accrue a liability for sick pay? (Points :5)

Sick pay benefits can bereasonably estimated.
Sick pay benefits vest.
Sick pay benefits equal 100%of the pay.
Sick pay benefitsaccumulate.

The intangible assets section of Sappelt Company at December 31,2017, is presented below.

Patents ($90,000 cost less $9,000amortization) $81,000

Franchises ($35,000 cost less $14,000amortization) 21,000

Total $102,000

The patent was acquired in January 2017 and has a useful life of10 years. The franchise was acquired in January 2014 and also has auseful life of 10 years. The following cash transactions may haveaffected intangible assets during 2018.

Jan.2 Paid $18,000 legal costs to successfully defend the patent againstinfringement by another company.

Jan.–June Developed a new product, incurring $149,000 in research anddevelopment costs. A patent was granted for the product on July 1.Its useful life is equal to its legal life.

Sept.1 Paid $50,000 to an extremely large defensive lineman to appear incommercials advertising the company’s products. The commercialswill air in September and October.

Oct.1 Acquired a franchise for $130,000. The franchise has a useful lifeof 50 years.

Prepare journal entries to record the transactions above.(Credit account titles are automatically indented when amount isentered. Do not indent manually. Record journal entries in theorder presented in the problem. If no entry is required, select "NoEntry" for the account titles and enter 0 for theamounts.)

Prepare journal entries to record the 2018 amortization expense.(Credit account titles are automatically indented when amount isentered. Do not indent manually. Record journal entries in theorder presented in the problem. If no entry is required, select "NoEntry" for the account titles and enter 0 for the amounts.)

Prepare the intangible assets section of the balance sheet atDecember 31, 2018. (Round answers to 0 decimal places, e.g.2,125.)