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Chapter 12: Q10BE. (page 638)

Question: Sinise Industries acquired two copyrights during 2017. One copyright related to a textbook that was developed internally at a cost of \(9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2017, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2017, for \)24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise’s balance sheet as of December 31, 2017?

Short Answer

Expert verified

Copyright No. 1 should be expensed and Copyright No. 2 should be capitalized in Sinise’s balance sheet as of December 31, 2017.

Step by step solution

01

Step1- Meaning of Copyright

The legal right of the owner of an intellectual property is known as copyright. Simply put, copyright refers to the ability to duplicate. This implies that only the original producers of items, as well as anybody they provide permission to, have the sole right to replicate the work.

02

Step2- Explanation

Copyright No. 1 for $9,900should be expensed and therefore not reported on the balance sheet.


Copyright No. 2 for $24,000 should be capitalized because the useful life is indefinite, copyright No. 2 should be tested at least annually for impairment using a fair value test. It would be reflected on the balance sheet at a cost of $24,000 as of December 31, 2017.

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Most popular questions from this chapter

Franklin Corp. has a debt investment that it has held for several years. When it purchased the debt investment, Franklin classified and accounted for it as an available-for-sale. Can Franklin use the fair value option for this investment? Explain.

Question: Your classmate Kate believes that the equity method is applied with a strict application of the “20%” rule. Do you agree? Explain.

Question: Treasure Land Corporation incurred the following costs in 2017.

Cost of laboratory research aimed at the discovery of new knowledge

\(120,000

Cost of testing in search for product alternatives

100,000

Cost of engineering activity required to advance the design of a product to the manufacturing stage

210,000

Prototype testing subsequent to meeting economic viability

75,000

\)505,000

Prepare the necessary 2017 journal entry(ies) for Treasure Land.

Question: Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of \(400,000. The Johnson Division’s net assets, including the goodwill, have a carrying amount of \)800,000. The fair value of the division is estimated to be $1,000,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

Question: As the recently appointed auditor for Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2017, are prepared. The controller for Bryan Corporation mentions that only one account is kept for intangible assets. The account is shown below.

Intangible assets

Debit

Credit

Balance

Jan. 4

Research and development costs

940,000

940,000

Jan. 5

Legal costs to obtain patent

75,000

1,015,000

Jan. 31

Payment of 7 months’ rent on property leased by Bryan

91,000

1,106,000

Feb. 11

Premium on common stock

250,000

856,000

March 31

Unamortized bond discount on bonds due March 31, 2037

84,000

940,000

April 30

Promotional expenses related to start-up of business

207,000

1,147,000

June 30

Operating losses for first 6 months

241,000

1,388,000

Instructions

Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 10 years.
See all solutions

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