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Chapter 12: Question 7 (page 637)

What should be the pattern of amortization for a limited-life intangible?

Short Answer

Expert verified

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.

Step by step solution

01

Amortization

Amortization is a strategy used in accounting to reduce the book value of a loan or intangible asset over a predetermined period.

02

Limited-life intangible

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.

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Most popular questions from this chapter

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.

Use the information from BE17-5 but assume the stock is nonmarketable. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment, if any.

What is meant by the term “underlying” as it relates to derivative financial instruments.

The following information relates to Moran Co. for the year ended December 31, 2017: net income \(1,245.7 million; unrealized holding loss of \)10.9 million related to available-for-sale debt securities during the year; accumulated other comprehensive income of $57.2 million on December 31, 2016. Assuming no other changes in accumulated other comprehensive income, determine (a) other comprehensive income for 2017, (b)comprehensive income for 2017, and (c) accumulated other comprehensive income at December 31, 2017.

Question: Indicate whether the following items are capitalized or expensed in the current year. (a) Purchase cost of a patent from a competitor. (c) Organizational costs. (b) Research and development costs. (d) Costs incurred internally to create goodwill.
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