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Chapter 12: Question 8 (page 637)

Columbia Sportswear Company acquired a trademark that is helpful in distinguishing one of its new products. The trademark is renewable every 10 years at minimal cost. All evidence indicates that this trademarked product will generate cash flows for an indefinite period of time. How should this trademark be amortized?

Short Answer

Expert verified

This trademark has an infinite life span (renewable every 10 years at minimal cost); it should not be amortized.

Step by step solution

01

Definition of Trademark

A trademark is a symbol that distinguishes one company's goods or services from those of other companies. Intellectual property rights safeguard trademarks. Also, all evidence indicates that this trademarked product will generate cash flows for an indefinite period.

02

How Trademark is amortized

Trademarks are not amortized since they are thought to have an infinite life, implying that a trademark's value may be maintained indefinitely. A company's trademark value, on the other hand, must be reevaluated every year.

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Most popular questions from this chapter

Question: Nieland Industries had one patent recorded on its books as of January 1, 2017. This patent had a book value of \(288,000 and a remaining useful life of 8 years. During 2017, Nieland incurred research and development costs of \)96,000 and brought a patent infringement suit against a competitor. On December 1, 2017, Nieland received the good news that its patent was valid and that its competitor could not use the process Nieland had patented. The company incurred $85,000 to defend this patent. At what amount should patent(s) be reported on the December 31, 2017, balance sheet, assuming monthly amortization of patents?

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.

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 recoverable amount of the division is estimated to be $1,000,000. Prepare Waters’ journal entry, if necessary, to record an impairment of the goodwill.

Question: Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for intangible assets.

Simon Company determines that its goodwill is impaired. It finds that its implied goodwill is \(360,000 and its recorded goodwill is \)400,000. The fair value of its identifiable assets is $1,450,000. What is the amount of goodwill impaired?
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