Intangibles have either a limited useful life or an indefinite useful life. How should these two different types of intangibles be amortized?
Intangibles have either a limited useful life or an indefinite useful life. Intangibles with limited life can be amortized, but intangibles with an endless life cannot be amortized.
Amortization is a strategy used in accounting to reduce the book value of a loan or intangible asset over a predetermined period.
The limited-life intangibles should be amortized over their useful life by systematic charges to expenditure.
It is not possible to amortize an intangible asset with endless life.
(Investment Classifications) For the following investments, identify whether they are:
1. Trading debt securities.
2. Available-for-sale debt securities.
3. Held-to-maturity debt securities.
4. None of the above.
Each case is independent of the other.
(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases,
which is expected next month, it will be sold.
(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30%
of its outstanding stock.
(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year.
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money
has been tight recently and they may need to be sold.
(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.
(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project
planned 10 years from now.
Question: As the recently appointed auditor for Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2017, are prepared. The controller for Bryan Corporation mentions that only one account is kept for intangible assets. The account is shown below.
Research and development costs
Legal costs to obtain patent
Payment of 7 months’ rent on property leased by Bryan
Premium on common stock
Unamortized bond discount on bonds due March 31, 2037
Promotional expenses related to start-up of business
Operating losses for first 6 months
Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 10 years.
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