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Chapter 12: Q19Q (page 610)
Hiram Co. uses the equity method to account for investments in common stock. What accounting should be made for dividends received from these investments subsequent to the date of investment?
Distribution of dividends to investors leads reduction in the equity investment account.
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Question: (Accounting for Patents) On June 30, 2017, your client, Ferry Company, was granted two patents covering plastic cartons that it had been producing and marketing profitably for the past 3 years. One patent covers the manufacturing process, and the other covers the related products.
Ferry executives tell you that these patents represent the most significant breakthrough in the industry in the past 30 years. The products have been marketed under the registered trademarks Evertight, Duratainer, and Sealrite. Licenses under the patents have already been granted by your client to other manufacturers in the United States and abroad, and are producing substantial royalties.
On July 1, Ferry commenced patent infringement actions against several companies whose names you recognize as those of substantial and prominent competitors. Ferry鈥檚 management is optimistic that these suits will result in a permanent injunction against the manufacture and sale of the infringing products as well as collection of damages for loss of profits caused by the alleged infringement.
The financial vice president has suggested that the patents be recorded at the discounted value of expected net royalty receipts.
Instructions
Columbia Sportswear Company acquired a trademark that is helpful in distinguishing one of its new products. The trademark is renewable every 10 years at minimal cost. All evidence indicates that this trademarked product will generate cash flows for an indefinite period of time. How should this trademark be amortized?
Research and development activities may include (a) personnel costs, (b) materials and equipment costs, and (c) indirect costs. What is the recommended accounting treatment for these three types of R&D costs?
Joni Hyde Inc. has the following amounts reported in its general ledger at the end of the current year.
Organization costs $24,000
Trademarks 15,000
Discount on bonds payable 35,000
Deposits with advertising agency for ads to promote goodwill of company 10,000
Excess of cost over fair value of net identifiable assets of acquired subsidiary 75,000
Cost of equipment acquired for research and development projects; the equipment has an alternative future use 90,000
Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years 80,000
Instructions
(a) On the basis of the information above, compute the total amount to be reported by Hyde for intangible assets on its balance sheet at year-end.
(b) If an item is not to be included in intangible assets, explain its proper treatment for reporting purposes.
Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2017, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10 years. Prepare Taylor Swift鈥檚 journal entries to record the purchase of the patent and 2017 amortization.
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