Chapter 12: Question 2E. (page 639)

Presented below is selected information related to Martin Burke Inc. at year-end. All these accounts have debit balances.
Cable television franchises
Film contract rights
Music copyrights
Customer lists
Research and development costs
Prepaid expenses
Goodwill
Covenants not to compete
Cash
Brand names
Discount on notes payable
Notes receivable
Accounts receivable
Investments in affiliated companies
Property, plant, and equipment
Organization costs
Internet domain name
Land
Instructions:
Identify which items should be classified as an intangible asset. For those items not classified as an intangible asset, indicate where they would be reported in the financial statements.

Short Answer

Expert verified

Answer

There are two types of intangible assets: indeterminate and definite. A company's brand name is considered an infinite intangible asset because it stays with the firm for as long as it operates.

Step by step solution

The following will be classified as an intangible asset:

Cable television franchises	Film contract rights
Music copyrights	Customer lists
Goodwill	Covenants not to compete

Treatment for those items which are not classified as an intangible asset:

Particulars/Items	Treatment
Cash	Current assets
Accounts receivable	Current assets
Notes receivable	Current assets
Prepaid expenses	Current assets
Property, plant, and equipment	Non-current assets
Land	Non-current assets
Investments in affiliated companies	Part of investment section of the balance sheet
Research and development costs	Operating expense
Discount on notes payable	As a deduction from the related notes payable on the balance sheet
Organization costs (start-up costs)	Expense

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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

Short Answer

Step by step solution

The following will be classified as an intangible asset:

Treatment for those items which are not classified as an intangible asset:

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