acct 551

Topics: Balance sheet, Goodwill, Intangible asset Pages: 8 (1639 words) Published: August 26, 2014
Assignment 1

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. Instructions
(a)Indicate which items on the list above would generally be reported as intangible assets in the balance sheet.
13.Goodwill acquired in the purchase of a business.
15.Cost of purchasing a patent from an inventor
16.Legal costs incurred in securing a patent.
17.Unrecovered costs of a successful legal suit to protect the patent. 23.Cost of purchasing a trademark
19.Cost of purchasing a copyright.
10.Purchase cost of a franchise.
(b)Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements. 1.Investment in a subsidiary company. – long term investments 2.Timberland. - PPE

3.Cost of engineering activity required to advance the design of a product to the manufacturing stage. – research and development 4.Lease prepayment (6 months’ rent paid in advance). – prepaid rent 5.Cost of equipment obtained. - PPE

6.Cost of searching for applications of new research findings. – R&D expense 7.Costs incurred in the formation of a corporation. - expense 8.Operating losses incurred in the start-up of a business. – operating loss 9.Training costs incurred in start-up of new operation. - expense 11.Goodwill generated internally. – not recorded

12.Cost of testing in search for product alternatives. – R&D expense 14.Cost of developing a patent. – R&D expense
18.Cost of conceptual formulation of possible product alternatives. 20.Research and development costs. – R&D expense
21.Long-term receivables. – long term investment
22.Cost of developing a trademark. - expense

(Kieso, 02/201
1, p. 698)

E12-4 (Intangible Amortization) Presented below is selected information for Palmiero Company. 1.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? 2010


Amortization Expense 250,000
Accumulated Patent Amortization 250,000

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?

1,350,000/6 = 225,000 for Dec 2012

Book value $500,000.
3.On January 1, 2010, Palmiero incurred organization costs of $275,000. What amount of organization expense should be reported in 2012? a.Expense startup costs as 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 time. The license has an initial term of 5 years but by paying a nominal fee, Palmiero can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2012?

Answer the questions asked about each of the factual situations. E12-5 (Correct Intangible Asset Account) As the recently appointed auditor for Hillary Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2012, are prepared. The controller for Hillary Corporation mentions that only one account is kept for intangible...
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