Chapter 12: 12-16Q (page 637)
Last year, Zeno Company recorded Impairment on an intangible asset held for use. Recent appraisals indicate that the asset has increased in value. Should Zeno record this recovery in value?
Impairment losses on assets kept for use may not be reversed under US GAAP.
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The following is a list of items that could be included in the intangible assets section of the balance sheet.
1. Investment in a subsidiary company.
2. Timberland.
3. Cost of engineering activity required to advance the design of a product to the manufacturing stage.
4. Lease prepayment (6 months’ rent paid in advance).
5. Cost of equipment obtained.
6. Cost of searching for applications of new research findings.
7. Costs incurred in the formation of a corporation.
8. Operating losses incurred in the start-up of a business.
9. Training costs incurred in start-up of new operation.
10. Purchase cost of a franchise.
11. Goodwill generated internally.
12. Cost of testing in search for product alternatives.
13. Goodwill acquired in the purchase of a business.
14. Cost of developing a patent.
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.
18. Cost of conceptual formulation of possible product alternatives.
19. Cost of purchasing a copyright.
20. Research and development costs.
21. Long-term receivables.
22. Cost of developing a trademark.
23. Cost of purchasing a trademark.
Instructions:
(a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet.
(b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements.
Question: (Accounting for Franchise, Patents, and Trademark) Information concerning Sandro Corporation’s intangible assets is as follows.
Instructions
Prepare a schedule showing all expenses resulting from the transactions that would appear on Sandro’s income statement for the year ended December 31, 2017. Show supporting computations in good form.
On January 1, 2017, Dagwood Company purchased at par 6%
bonds having a maturity value of $300,000. They are dated January 1, 2017, and mature January 1, 2022, with interest received
on January 1 of each year. The bonds are classified in the held-to-maturity category.
Instructions
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entry to record the interest revenue on December 31, 2017.
(c) Prepare the journal entry to record the interest received on January 1, 2018.
In examining financial statements, financial analysts often write off goodwill immediately. Comment on this procedure.
Question: (Accounting for Research and Development Costs) Czeslaw Corporation’s research and development department has an idea for a project it believes will culminate in a new product that would be very profitable for the company. Because the project will be very expensive, the department requests approval from the company’s controller, Jeff Reid.
Reid recognizes that corporate profits have been down lately and is hesitant to approve a project that will incur significant expenses that cannot be capitalized due to the requirements of the authoritative literature. He knows that if they hire an outside firm that does the work and obtains a patent for the process, Czeslaw Corporation can purchase the patent from the outside firm and record the expenditure as an asset. Reid knows that the company’s own R&D department is first-rate, and he is confident they can do the work well.
Instructions
Answer the following questions.
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