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Chapter 12: Q25Q. (page 637)

An intangible asset with an estimated useful life of 30 years was acquired on January 1, 2007, for $540,000. On January 1, 2017, a review was made of intangible assets and their expected service lives, and it was determined that this asset had an estimated useful life of 30 more years from the date of the review. What is the amount of amortization for this intangible in 2017?

Short Answer

Expert verified

There will be two separate computations of the amount of amortization because the asset's projected useful life has changed, and the amount of amortization for this intangible asset in 2017 will be $12,000.

Step by step solution

01

Calculation

Initial asset value

$540000

Estimated years of amortization

30

Yearly Amortization(1)

$18000

Amortization from 2007 to 2016

($180000)

Asset value on January 1, 2017

$360000

Estimated years of amortization

30

Yearly Amortization(2)

$12000

Amortization 2017

$12000

02

Explanation

The useful life of the intangible asset was 30 years on January 1, 2007, and also 30 years when reviewed on January 1, 2017. So the total useful life of the intangible asset was 40 years. The asset was acquired for $540,000 on January 1, 2007.

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Most popular questions from this chapter

Use the information provided in BE12-7. Assume that the fair value of the division is estimated to be \(750,000 and the implied goodwill is \)350,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

Explain the difference between artistic-related intangible assets and contract-related intangible assets.

Explain how the investment account is affected by investee activities under the equity method.

Hillsborough Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of \(70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to \)60,000. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.

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.
See all solutions

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