Question

Joni Hyde Inc. has the following amounts reported in its general ledger at the end of the current year.

Organization costs $24,000

Trademarks 15,000

Discount on bonds payable 35,000

Deposits with advertising agency for ads to promote goodwill of company 10,000

Excess of cost over fair value of net identifiable assets of acquired subsidiary 75,000

Cost of equipment acquired for research and development projects; the equipment has an alternative future use 90,000

Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years 80,000

Instructions

(a) On the basis of the information above, compute the total amount to be reported by Hyde for intangible assets on its balance sheet at year-end.

(b) If an item is not to be included in intangible assets, explain its proper treatment for reporting purposes.

Short answer

Answer

Intangible assets are only reported on a company's balance sheet if they are acquired assets with a measurable value and a long enough useful life to be amortized. The requirements for accounting are established in generally accepted accounting principles (GAAP) (GAAP).

Step-by-step solution

Calculation of total amount for Intangible assets on the balance sheet

Trademarks	$15,000
Excess of cost over fair value of net identifiable assets of acquired subsidiary (goodwill)	$75,000
Total intangible assets	$90,000

Item’s proper treatment which are not included in intangible assets

Items	Treatment
Organization costs,$24,000	It should be expensed.
Discount on bonds,$35,000	It should be reported as a contra account to bonds payable in the long-term liabilities section.
Deposits with advertising agency for ads to promote goodwill of company, $10,000	It should be reported either as an expense or as prepaid advertising in the current assets section. Advertising costs in general are expenses when incurred or when first used.
Cost of equipment acquired for research and development projects; the equipment has an alternative future use, $90,000	It should be reported with property, plant, and equipment, because the equipment has an alternative.
Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years, $80,000	It should be classified as research and development expense on the income statement.