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Q25Q.

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Intermediate Accounting (Kieso)
Found in: Page 637

Short Answer

An intangible asset with an estimated useful life of 30 years was acquired on January 1, 2007, for $540,000. On January 1, 2017, a review was made of intangible assets and their expected service lives, and it was determined that this asset had an estimated useful life of 30 more years from the date of the review. What is the amount of amortization for this intangible in 2017?

There will be two separate computations of the amount of amortization because the asset's projected useful life has changed, and the amount of amortization for this intangible asset in 2017 will be $12,000.

See the step by step solution

Step by Step Solution

Step1: Calculation

Initial asset value

$540000

Estimated years of amortization

30

Yearly Amortization(1)

$18000

Amortization from 2007 to 2016

($180000)

Asset value on January 1, 2017

$360000

Estimated years of amortization

30

Yearly Amortization(2)

$12000

Amortization 2017

$12000

Step 2: Explanation

The useful life of the intangible asset was 30 years on January 1, 2007, and also 30 years when reviewed on January 1, 2017. So the total useful life of the intangible asset was 40 years. The asset was acquired for $540,000 on January 1, 2007.

Most popular questions for Business-studies Textbooks

Question: (Accounting for Research and Development Costs) Cuevas Co. is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this new product. As of year-end (December 31, 2017), the new product has not been manufactured for resale. However, a prototype unit was built and is in operation.

Throughout 2017, the new division incurred certain costs. These costs include design and engineering studies, prototype manufacturing costs, administrative expenses (including salaries of administrative personnel), and market research costs. In addition, approximately $900,000 in equipment (with an estimated useful life of 10 years) was purchased for use in developing and manufacturing the new product. Approximately $315,000 of this equipment was built specifically for the design development of the new product. The remaining $585,000 of equipment was used to manufacture the pre-production prototype and will be used to manufacture the new product once it is in commercial production.

Instructions

  1. How are “research” and “development” defined in the authoritative literature (GAAP)?
  2. Briefly indicate the practical and conceptual reasons for the conclusion reached by the Financial Accounting Standards Board on accounting and reporting practices for research and development costs.
  3. In accordance with GAAP, how should the various costs of Cuevas described above be recorded on the financial statements for the year ended December 31, 2017?
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