A company had three intangible assets at the end of the currentyear:
a. A patent purchased this year from the company on January 1 for acash cost of $8,400. When purchased, the patent had an estimatedlife of 14 years.
b. A trademark was registered with the federal government for$7,000. Management estimated that the trademark could be worth asmuch as $180,000 because it has an indefinite life.
c. Computer licensing rights were purchased this year on January 1for $52,000. The rights are expected to have a four-year usefullife to the company.
1.Compute the acquisition cost of each intangible asset.
Acquisition cost Patent Trademark Licensing Rights
2. Compute the amortization of each intangible for the currentyear ended December 31.
Amortization Expenses Patent Trademark Licensing Right
3. Show how these assets and any related expenses should bereported on the balance sheet and income statement for the currentyear
Income statement (partial) for the year ending12/31
Balance sheet (partial) at 12/31 Intangibles
A company had three intangible assets at the end of the currentyear: |
| a. | A patent purchased this year from the company on January 1 for acash cost of $8,400. When purchased, the patent had an estimatedlife of 14 years. |
| b. | A trademark was registered with the federal government for$7,000. Management estimated that the trademark could be worth asmuch as $180,000 because it has an indefinite life. |
| c. | Computer licensing rights were purchased this year on January 1for $52,000. The rights are expected to have a four-year usefullife to the company. |
| 1.Compute the acquisition cost of each intangible asset.
2. Compute the amortization of each intangible for the currentyear ended December 31.
3. Show how these assets and any related expenses should bereported on the balance sheet and income statement for the currentyear
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Related questions
During the current year, Rothchild, Inc., purchased two assetsthat are described as follows:
| HeavyEquipment |
| Purchase price,$275,000. |
| Expected to beused for 10 years, with a residual value at the end of that time of$50,000. |
| Expendituresrequired to recondition the equipment and prepare it for use,$75,000. |
| Patent |
| Purchase price,$75,000. |
| Expected to beused for five years, with no value at the end of that time. |
Rothchild depreciates heavyequipment by the declining-balance method at 150 percent of thestraight-line rate. It amortizes intangible assets by thestraight-line method. At the end of two years, because of changesin Rothchildâs core business, it sold the patent to a competitorfor $30,000. | ||
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b. Compute the amount of amortization on the patent for each of thetwo years it was owned by Rothchild. c-1. Prepare the plant and intangible assetssection of Rothchildâs balance sheet at the end of the first andsecond years.
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2. Remaining Life
Taylor Lewis Company has provided information on intangibleassets as follows.
A patent was purchased from Craig Company for $4,000,000 on June1, 2015. Lewis estimated the remaining useful life of the patent tobe eight years. The patent was carried in Craigâs accountingrecords at a net book value of $3,500,000 when Craig sold it toLewis.
During 2016, a franchise was purchased from Faragher Company for$360,000. In addition, 8% of revenue from the franchise must bepaid to Faragher. Revenue from the franchise for 2016 was$1,950,000. Lewis estimates the useful life of the franchise to be12 years and takes a full yearâs amortization in the year ofpurchase.
Lewis incurred research and development costs in 2016 asfollows:
| Materials and equipment | $286,500 |
| Personnel | $153,700 |
| Indirect costs | $95,355 |
| $535,555 |
Lewis estimates that these costs will be recouped by December31, 2019. The materials and equipment purchased have no alternativeuses.
On January 1, 2016, because of recent events in the field, Lewisestimates that the remaining life of the patent purchased on June1, 2015, is only five years from January 1, 2016.
1. Prepare a schedule showing the intangible section of Lewisâsbalance sheet at December 31, 2016. Show supporting computations ingood form.
2. Prepare a schedule showing the income statement effect forthe year ended December 31, 2016, as a result of the facts above.Show supporting computations in good form.
