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Chapter 9: 16RQ (page 488)

What is an intangible asset? Provide some examples

Short Answer

Expert verified

Assets that lack characteristics of tangibility are intangible assets like patent, goodwill etc.

Step by step solution

01

Definition of Intangible Assets

Intangible assets are defined as assets that do not have any physical form. Rather, these assets convey special rights from patents, copyrights, etc.

02

Examples of intangible assets

The examples of intangible assets are as follows:

  1. Patents: It is an intangible asset. For example, federal government conveying grant an exclusive 20-year right to produce and sell an invention
  2. Copyright and trademarks: Copyright gives a right to reproduce and sell a book, music or intellectual property, or work of art. Trademarks
  3. Goodwill: In accounting terms, goodwill refers to an excess of the cost to purchase another company over the market value of its net assets.
  4. Franchises and Licenses: Franchises are the privileges granted by a business to sell their goods or services under some specified conditions. Licenses are the privileges granted by the customers to use the public property in performing services.

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Most popular questions from this chapter

Which depreciation method ignores residual value until the last year of depreciation? Why?

Determining asset cost, preparing depreciation schedules (3 methods), and identifying depreciation results that meet management objectives

On January 3, 2018, Rapid Delivery Service purchased a truck at a cost of \(100,000. Before placing the truck in service, Rapid spent \)3,000 painting it, \(600 replacing tires, and \)10,400 overhauling the engine. The truck should remain in service for five years and have a residual value of $12,000. The truck鈥檚 annual mileage is expected to be 32,000 miles in each of the first four years and 8,000 miles in the fifth year鈥�136,000 miles in total. In deciding which depreciation method to use, Andy Sargeant, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance).

Requirements

1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value.

2. Rapid prepares financial statements using the depreciation method that reports the highest net income in the early years of asset use. Consider the first year that Rapid uses the truck. Identify the depreciation method that meets the company鈥檚 objectives.

How do land improvements differ from land?

Determining the cost of assets Lawson Furniture purchased land, paying \(65,000 cash and signing a \)250,000 note payable. In addition, Lawson paid delinquent property tax of \(5,000, title insurance costing \)4,000, and \(9,000 to level the land and remove an unwanted building. The company then constructed an office building at a cost of \)400,000. It also paid \(54,000 for a fence around the property, \)12,000 for a sign near the entrance, and $8,000 for special lighting of the grounds. Requirements

  1. Determine the cost of land, land improvements, and building.
  2. Which of these assets will Lawson depreciate?

: Distinguishing capital expenditures from revenue expenditures consider the following expenditures:

a. Purchase price.

b. Ordinary recurring repairs to keep the machinery in good working order.

c. Lubrication before machinery is placed in service.

d. Periodic lubrication after machinery is placed in service.

e. Major overhaul to extend useful life by three years.

f. Sales tax paid on the purchase price.

g. Transportation and insurance while machinery is in transit from seller to buyer.

h. Installation.

i. Training of personnel for initial operation of the machinery. Classify each of the expenditures as a capital expenditure or revenue expenditure
See all solutions

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