Exam 12: Intangible Assets

In early January 2013, Lerner Corporation applied for a patent, incurring legal costs of $60,000. In January 2014, Lerner incurred $9,000 of legal fees in a successful defense of its patent. Instructions (a) Compute 2013 amortization, 12/31/13 carrying value, 2014 amortization, and 12/31/14 carrying value if the company amortizes the patent over 10 years. (b) Compute the 2015 amortization and the 12/31/15 carrying value, assuming that at the beginning of 2015, based on new market research, Lerner determines that the fair value of the patent is $44,000. Estimated future cash flows from the patent are $49,000 on January 3, 2015.

Which intangible assets are amortized?

The cost of successfully defending a patent suit should be

12-127Remington Corporation purchases a patent from Durler Company on January.1, 2014, for $72,000. The patent has a remaining legal of 16 years. Remington feels the patent will be useful for 10 years. Assume that at January 1, 2016, the carrying amount of the patent on Remington's books is $64,800. In January, Remington spends $20,000 successfully defending a patent suit. Remington still feels the patent will be useful until the end of 2013. Prepare Remington's journal entries to record the amortization for 2014 and 2016.

In January, 2010, Findley Corporation purchased a patent for a new consumer product for $840,000. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. During 2015 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product. What amount should Findley charge to expense during 2015, assuming amortization is recorded at the end of each year?

Lopez Corp. incurred $840,000 of research and development costs to develop a product for which a patent was granted on January 2, 2012. Legal fees and other costs associated with registration of the patent totaled $160,000. On March 31, 2015, Lopez paid $300,000 for legal fees in a successful defense of the patent. The total amount capitalized for the patent through March 31, 2015 should be

Factors considered in determining an intangible asset's useful life include all of the following except

The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles.

Contreras Corporation acquired a patent on May 1, 2015. Contreras paid cash of $25,000 to the seller. Legal fees of $900 were paid related to the acquisition. What amount should be debited to the patent account?

Leon Corp. purchased Spinks Co. 4 years ago and at that time recorded goodwill of $480,000. The Sinks Division's net assets, including goodwill, have a carrying amount of $1,150,000. The fair value of the division is estimated to be $1,200,000. Instructions (a) Explain whether or not Leon Corp. must prepare an entry to record impairment of the goodwill. Include the entry, if necessary. (b) Repeat instruction (a) assuming that the fair value of the division is estimated to be $1,070,000 and the implied goodwill is $360,000.

Riley Co. incurred the following costs during 2015: In its income statement for the year ended December 31, 2015, Riley should report research and development expense of

Broadway Corporation was granted a patent on a product on January 1, 2004. To protect its patent, the corporation purchased on January 1, 2015 a patent on a competing product which was originally issued on January 10, 2011. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing the product. The cost of the competing patent should be

Limited-life intangibles are amortized by systematic charges to expense over their useful life.

The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?

Intangible assets have either a limited useful life or an indefinite useful life. How should these two different types of intangibles be amortized?

The right granted to all authors, painters, musicians, sculptors, and other artists for their creations and expressions is termed as a

12-130Merlin Corporation owns a patent that has a carrying amount of $400,000. Merlin expects future net cash flows from this patent to total $250,000. The fair value of the patent is $310,000. Prepare journal entry, if necessary, to record the loss on Impairment.

Material, labor, and overhead costs incurred in developing a new product are to be expensed as these are development costs.

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.

Loazia Inc. incurred the following costs during the year ended December 31, 2015: The total amount to be classified and expensed as research and development in 2015 is