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Chapter 12: Question 8 (page 637)

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?

Short Answer

Expert verified

This trademark has an infinite life span (renewable every 10 years at minimal cost); it should not be amortized.

Step by step solution

01

Definition of Trademark

A trademark is a symbol that distinguishes one company's goods or services from those of other companies. Intellectual property rights safeguard trademarks. Also, all evidence indicates that this trademarked product will generate cash flows for an indefinite period.

02

How Trademark is amortized

Trademarks are not amortized since they are thought to have an infinite life, implying that a trademark's value may be maintained indefinitely. A company's trademark value, on the other hand, must be reevaluated every year.

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Most popular questions from this chapter

Question: Your classmate Kate believes that the equity method is applied with a strict application of the 鈥�20%鈥� rule. Do you agree? Explain.

Explain why reclassification adjustments are necessary.

Question: Indicate whether the following items are capitalized or expensed in the current year.

  1. Purchase cost of a patent from a competitor.
  2. Research costs.
  3. Development costs (after achieving economic viability).
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  5. Costs incurred internally to create goodwill.

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.

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