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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: (Accounting for R&D Costs) Price Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2016, the company expends \(325,000 on a research project, but by the end of 2016 it is impossible to determine whether any benefit will be derived from it.

Instructions

  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 2017, and a successful patent is obtained. The R&D costs to complete the project are \(110,000. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2017 total \)16,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2017.
  3. In 2018, the company successfully defends the patent in extended litigation at a cost of \(47,200, thereby extending the patent life to December 31, 2025. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2018.
  4. Additional engineering and consulting costs incurred in 2018 required to advance the design of a product to the manufacturing stage total \)60,000. These costs enhance the design of the product considerably. Discuss the proper accounting treatment for this cost.

If intangibles are acquired for stock, how is the cost of the intangible determined?

On January 1, 2017, Hi and Lois Company purchased 12% bonds having a maturity value of \(300,000 for \)322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Hi and Lois Company uses the effective interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

Instructions

(a) Prepare the journal entry at the date of the bond purchase.

(b) Prepare a bond amortization schedule.

(c) Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017.

(d) Prepare the journal entry to record the interestand the amortization at December 31, 2018.

Hillsborough Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of \(70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to \)60,000. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.


Question: (Accounting for Trade Name) In early January 2016, Outkast Corporation applied for a trade name, incurring legal costs of \(16,000. In January 2017, Outkast incurred \)7,800 of legal fees in a successful defense of its trade name.

Instructions

  1. Compute 2016 amortization, 12/31/16 book value, 2017 amortization, and 12/31/17 book value if the company amortizes the trade name over 10 years.
  2. Compute the 2017 amortization and the 12/31/17 book value, assuming that at the beginning of 2017, Outkast determines that the trade name will provide no future benefits beyond December 31, 2020.
  3. Ignoring the response for part (b), compute the 2018 amortization and the 12/31/18 book value, assuming that at the beginning of 2018, based on new market research, Outkast determines that the fair value of the trade name is \(15,000. Estimated total future cash flows from the trade name is \)16,000 on January 3, 2018.
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