Financial Accounting Intangible Assets Question Answers Homework Help
- November 21, 2017
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1.Cambridge Company had three intangible assets at the end of 2012 (end of the accounting year):
a. A copyright purchased on January 1, 2011 for a cash cost of $12,300. The copyright is expected to have a ten-year useful life to Cambridge.
b. Goodwill of $65,000 from the purchase of the Hartford Company on July 1, 2010.
c. A patent purchased on January 1, 2012 for $39,200 from the inventor who had registered the patent with the U.S. Patent Office on January 1, 2006.
Required:
1. Compute the acquisition cost of each intangible asset.
2. Compute the amortization of each intangible at December 31, 2012. The company does not use contra-accounts.
3. Show how these assets and any related expenses should be reported on the balance sheet and income statement for 2012. (Assume there has been no impairment of goodwill.)
2.Trotman Company had three intangible assets at the end of 2012 (end of the accounting year):
(a) Computer software and Web development technology purchased on January 1, 2011, for $70,000. The technology is expected to have a four-year useful life to the company.
(b) A patent purchased from Ian Zimmer on January 1, 2012, for a cash cost of $6,000. Zimmer had registered the patent with the U.S. Patent Office five years ago.
(c) An internally developed trademark registered with the federal government for $13,000 on November 1, 2012. Management decided the trademark has an indefinite life.
Required:
1. Compute the acquisition cost of each intangible asset.
2. Compute the amortization of each intangible at December 31, 2012. The company does not use contra-accounts.
3. Show how these assets and any related expenses should be reported on the balance sheet and income statement for 2012.
3. Fearn Company has five different intangible assets to be accounted for and reported on the financial statements. The management is concerned about the amortization of the cost of each of these intangibles.
Facts about each intangible follow:
a. Patent. The company purchased a patent at a cash cost of $54,600 on January 1, 2011. The patent has an estimated useful life of 13 years.
b. Copyright. On January 1, 2011, the company purchased a copyright for $22,500 cash. It is estimated that the copyrighted item will have no value by the end of 20 years.
c. Franchise. The company obtained a franchise from McKenna Company to make and distribute a special item. It obtained the franchise on January 1, 2011, at a cash cost of $14,400 for a 12-year period.
d. License. On January 1, 2010, the company secured a license from the city to operate a special service for a period of five years. Total cash expended to obtain the license was $14,000.
e. Goodwill. The company started business in January 2008 by purchasing another business for a cash lump sum of $400,000. Included in the purchase price was “Goodwill, $60,000.” Company executives stated that “the goodwill is an important long-lived asset to us.” It has an indefinite life.
Required:
1. Compute the amount of amortization that should be recorded for each intangible asset at the end of the annual accounting period, December 31, 2011.
2. Give the book value of each intangible asset on December 31, 2012.
3. Assume that on January 2, 2013, the copyrighted item was impaired in its ability to continue to produce strong revenues. The other intangible assets were not affected. Fearn estimated that the copyright will be able to produce future cash flows of $18,000. The fair value of the copyright is determined to be $16,000. Compute the amount, if any, of the impairment loss to be recorded.
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4. Munn, Inc., had the following intangible account balances at December 31, 2006:
Patent ………………………… $192,000
Accumulated amortization ……. (24,000)
Transactions during 2007 and other information relating to Munn’s intangible assets were as follows:
1. The patent was purchased from Grey Company for $192,000 on January 1, 2005, at which date the remaining legal life was 16 years. On January 1, 2007, Munn determined that the useful life of the patent was only eight years from the date of acquisition.
2. On January 2, 2007, in connection with the purchase of a trademark from Cody Corporation, the parties entered into a noncompetition agreement and a consulting contract. Munn paid Cody $800,000, of which three-quarters was for the trademark and one-quarter was for Cody’s agreement not to compete for a five-year period in the line of business covered by the trademark. Munn considers the life of the trademark to be indefinite. Under the consulting contract, Munn agreed to pay Cody $50,000 annually on January 2 for five years. The first payment was made on January 2, 2007. The trademark is not impaired at the end of 2007.
Required
1. Prepare a schedule of the expenses for 2007 relating to Munn’s intangible asset balances at December 31, 2006 and transactions during 2007.
2. Prepare the intangible assets section of Munn’s balance sheet at December 31, 2007.
5. Fearn Company has five different intangible assets to be accounted for and reported on the financial statements. The management is concerned about the amortization of the cost of each of these intangibles.
Facts about each intangible follow:
a. Patent. The company purchased a patent at a cash cost of $54,600 on January 1, 2011. The patent has an estimated useful life of 13 years.
b. Copyright. On January 1, 2011, the company purchased a copyright for $22,500 cash. It is estimated that the copyrighted item will have no value by the end of 20 years.
c. Franchise. The company obtained a franchise from McKenna Company to make and distribute a special item. It obtained the franchise on January 1, 2011, at a cash cost of $14,400 for a 12-year period.
d. License. On January 1, 2010, the company secured a license from the city to operate a special service for a period of five years. Total cash expended to obtain the license was $14,000.
e. Goodwill. The company started business in January 2008 by purchasing another business for a cash lump sum of $400,000. Included in the purchase price was “Goodwill, $60,000.” Company executives stated that “the goodwill is an important long-lived asset to us.” It has an indefinite life.
Required:
1. Compute the amount of amortization that should be recorded for each intangible asset at the end of the annual accounting period, December 31, 2011.
2. Give the book value of each intangible asset on December 31, 2012.
3. Assume that on January 2, 2013, the copyrighted item was impaired in its ability to continue to produce strong revenues. The other intangible assets were not affected. Fearn estimated that the copyright will be able to produce future cash flows of $18,000. The fair value of the copyright is determined to be $16,000. Compute the amount, if any, of the impairment loss to be recorded.
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