Intermediate Accounting

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  E12-16
E12-1 (Classification Issues—Intangibles) Presented below is a list of items that could be included in the intangible assets section of the balance sheet.

1. Investment in a subsidiary company. …. LT Investment in Balance Sheet 2. Timberland. ……………………………………..… PPE in Balance Sheet 3. Cost of engineering activity required to advance the design of a product to the manufacturing stage. …………R& D Expense in Income Statement 4. Lease prepayment (6 months' rent paid in advance). …………………………………………………. Prepaid Rent in Balance Sheet 5. Cost of equipment obtained. …………………………………….. PPE in Balance Sheet 6. Cost of searching for applications of new research findings. ……………………………………. R& D Expense in Income Statement 7. Costs incurred in the formation of a corporation. …………………………………………………. Organization Fees in Income Statement 8. Operating losses incurred in the startup of a business. ……………………………………. Operating Loss in Income Statement 9. Training costs incurred in startup of new operation. …………………………………………………. Training Expense in Income Statement 10. Purchase cost of a franchise. ……………………………. Intangible Assets in Balance Sheet 11. Goodwill generated internally. ………………………….…. No Recording 12. Cost of testing in search for product alternatives. …………………………………………………. R& D Expense in Income Statement 13. Goodwill acquired in the purchase of a business. …………………………………………………. Intangible Assets in Balance Sheet 14. Cost of developing a patent. R& D Expense in Income Statement 15. Cost of purchasing a patent from an inventor. …………………………………………………. Intangible Assets in Balance Sheet 16. Legal costs incurred in securing a patent. …………………………………………………. Intangible Assets in Balance Sheet 17. Unrecovered costs of a successful legal suit to protect the patent. ………………………. Intangible Assets in Balance Sheet 18. Cost of conceptual formulation of possible product alternatives. ………………………. R& D Expense in Income Statement 19. Cost of purchasing a copyright. ………………………Intangible Assets in Balance Sheet 20. Research and development costs………………….. R& D Expense in Income Statement 21. Long-term receivables………………….. LT Investment in Balance Sheet 22. Cost of developing a trademark…………….. Expense in Income Statement 23. Cost of purchasing a trademark…………………… Intangible Assets in Balance Sheet

E12-4 (Intangible Amortization) Presented below is selected information for Palmiero Company. Palmiero purchased a patent from Vania Co. for $1,500,000 on January 1, 2010. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2020. During 2012, Palmiero determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2012?

Amortization for 2010/2011 (1,500,000/10 x 2) = 300,000

Amortization for 2012 (1,500,000-300,000) / (6-2) = 300,000

Accumulated Amortization = 300,000 + 300,000 = 600,000

Patent = 900,000 (1,500,000 – 600,000)

2. Palmiero bought a franchise from Dougherty Co. on January 1, 2011, for $350,000. The carrying amount of the franchise on Dougherty’s books on January 1, 2011, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Palmiero must enter a competitive bidding at the end of 2020, it is unlikely that the franchise will be retained beyond 2020. What amount should be amortized for the year ended December 31, 2012?

$35,000 ($350,000 ÷ 10)

3. On January 1, 2010, Palmiero incurred organization costs of $275,000. What amount of organization expense should be reported in 2012?

275,000 costs should be expensed when incurred

4. Palmiero purchased the license for distribution of a popular consumer product on January 1, 2012, for $150,000. It is expected that this product will generate cash flows for an indefinite period of...
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