What should be the pattern of amortization for a limited-life intangible?
If the pattern in which the asset is consumed or used up can be reliably identified, the amount of amortization expensed for a limited-life intangible asset should mirror that pattern.
If it is impossible to discern the pattern of production or consumption, the straight-line approach of amortization should be utilized.
Amortization is a strategy used in accounting to reduce the book value of a loan or intangible asset over a predetermined period.
Patents, copyrights, and goodwill are examples of intangible assets with a finite lifespan. The straight-line approach or the units of activity method is used to amortize these assets throughout the length of their useful lives.
Presented below is selected information related to Martin Burke Inc. at year-end. All these accounts have debit balances.
Cable television franchises
Film contract rights
Research and development costs
Covenants not to compete
Discount on notes payable
Investments in affiliated companies
Property, plant, and equipment
Internet domain name
Identify which items should be classified as an intangible asset. For those items not classified as an intangible asset, indicate where they would be reported in the financial statements.
On January 2, 2017, Raconteur Corp. reported the following intangible assets: (1) copyright with a carrying value of $15,000, and (2) a trade name with a carrying value of $8,500. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 10 years.
At December 31, 2017, Raconteur assessed the intangible assets for possible impairment and developed the following information.
Estimated Undiscounted Expected Future Cash Flows
Estimated Fair Value
Prepare any journal entries required for Raconteur’s intangible assets at December 31, 2017.
Many stock analysts indicate a preference for less-volatile operating income measures. Such measures make it easier to predict future income and cash flows, using reported income measures. How does the accounting for impairments of intangible assets affect the volatility of operating income?
Many accounting issues involve a trade-off between the primary characteristics of relevant and representationally faithful information. How does the accounting for intangible asset impairments reflect this trade-off?
Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift’s books is $43,200. In January, Taylor Swift spends $24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.
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.
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