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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

Expert verified

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

01

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

02

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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Most popular questions from this chapter

Question: Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of \(400,000. The Johnson Division鈥檚 net assets, including the goodwill, have a carrying amount of \)800,000. The fair value of the division is estimated to be $1,000,000. Prepare Waters鈥� journal entry, if necessary, to record impairment of the goodwill.

(Copyright Impairment) Presented below is information related to copyrights owned by Mare Company at December 31, 2017.

Cost

\(8,600,000

Carrying amount

4,300,000

Expected future net cash flows

4,000,000

Fair value

3,200,000

Assume that Mare Company will continue to use this copyright in the future. As of December 31, 2017, the copyright is estimated to have a remaining useful life of 10 years.

Instructions

  1. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. The company does not use accumulated amortization accounts.
  2. Prepare the journal entry to record amortization expense for 2018 related to the copyrights.
  3. The fair value of the copyright at December 31, 2018, is \)3,400,000. Prepare the journal entry (if any) necessary to record the increase in fair value.

Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2015, the company expends \(325,000 on a research project, but by the end of 2015, it is impossible to determine whether any benefit will be derived from it.

  1. What account should be charged for the \)325,000, and how should it be shown in the financial statements?
  2. The project is completed in 2016, and a successful patent is obtained. The R&D costs to complete the project are \(130,000 (\)36,000 of these costs were incurred after achieving economic viability). The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2016 total \(24,000. The patent has an expected useful life of 5 years. Record these costs in the journal entry form. Also, record patent amortization (full year) in 2016.
  3. In 2017, the company successfully defends the patent in extended litigation at a cost of \)47,200, thereby extending the patent life to December 31, 2024. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2017.
  4. Additional engineering and consulting costs incurred in 2017 required to advance the design of a new version of the product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably, but it is highly uncertain if there will be a market for the new version of the product. Discuss the proper accounting treatment for this cost.

Where on the asset side of the balance sheet are debt investments classified as trading securities, available-for-sale securities, and held-to-maturity securities reported? Explain.

What is the nature of research and development costs?
See all solutions

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