Question 3E. Joni Hyde Inc. has the following... [FREE SOLUTION]

Chapter 12: Question 3E. (page 639)

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.

Short Answer

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Answer

Intangible assets are only reported on a company's balance sheet if they are acquired assets with a measurable value and a long enough useful life to be amortized. The requirements for accounting are established in generally accepted accounting principles (GAAP) (GAAP).

Step by step solution

Calculation of total amount for Intangible assets on the balance sheet

Trademarks	$15,000
Excess of cost over fair value of net identifiable assets of acquired subsidiary (goodwill)	$75,000
Total intangible assets	$90,000

Item’s proper treatment which are not included in intangible assets

Items	Treatment
Organization costs,$24,000	It should be expensed.
Discount on bonds,$35,000	It should be reported as a contra account to bonds payable in the long-term liabilities section.
Deposits with advertising agency for ads to promote goodwill of company, $10,000	It should be reported either as an expense or as prepaid advertising in the current assets section. Advertising costs in general are expenses when incurred or when first used.
Cost of equipment acquired for research and development projects; the equipment has an alternative future use, $90,000	It should be reported with property, plant, and equipment, because the equipment has an alternative.
Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years, $80,000	It should be classified as research and development expense on the income statement.

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Cost of equipment acquired that will have alternative uses in future R&D projects over the next 5 years (uses straight-line depreciation)	$280,000
Materials consumed in R&D projects	59,000
Consulting fees paid to outsiders for R&D projects	100,000
Personnel costs of persons involved in R&D projects	128,000
Indirect costs reasonably allocable to R&D projects	50,000
Materials purchased for future R&D projects	34,000

	Intangible Assets
7/1/17	8-year franchise; expiration date 6/30/25	\( 48,000
10/1/17	Advance payment on laboratory space (2-year lease)	24,000
12/31/17	Net loss for 2017 including state incorporation fee, \)1,000, and related legal fees of organizing, $5,000 (all fees incurred in 2017)	16,000
1/2/18	Patent purchased (10-year life)	84,000
3/1/18	Cost of developing a secret formula (indefinite life)	75,000
4/1/18	Goodwill purchased (indefinite life)	278,400
6/1/18	Legal fee for successful defense of patent purchased above	12,650
9/1/18	Research and development costs	160,000

Date	Activity	Cost
2008鈥�2009	Research conducted to develop precipitator	$384,000
Jan. 2010	Design and construction of a prototype	87,600
March 2010	Testing of models	42,000
Jan. 2011	Fees paid engineers and lawyers to prepare patent application; patent granted June 30, 2011	59,500
Nov. 2012	Engineering activity necessary to advance the design of the precipitator to the manufacturing stage	81,500
Dec. 2013	Legal fees paid to successfully defend precipitator patent	42,000
April 2014	Research aimed at modifying the design of the patented precipitator	43,000
July 2018	Legal fees paid in unsuccessful patent infringement suit against a competitor	34,000

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Short Answer

Step by step solution

Calculation of total amount for Intangible assets on the balance sheet

Item’s proper treatment which are not included in intangible assets

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