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Intangibles Problem 1

This document contains 10 problems related to accounting for intangible assets: 1) A company wrote off the unamortized portion of a patent over 5 years after learning it would be obsolete in 4 years. 2) Costs related to developing a trademark, including marketing research, design costs, legal fees, and advertising, should be capitalized as the initial cost of the trademark. 3) Amortization expense for a competing patent purchased in 2018 should be recorded. 4) Total intangible assets to be reported include patents, trademarks, and excess of cost over fair value of acquired subsidiaries. 5) Goodwill arises from the excess of fair value of net assets

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282 views3 pages

Intangibles Problem 1

This document contains 10 problems related to accounting for intangible assets: 1) A company wrote off the unamortized portion of a patent over 5 years after learning it would be obsolete in 4 years. 2) Costs related to developing a trademark, including marketing research, design costs, legal fees, and advertising, should be capitalized as the initial cost of the trademark. 3) Amortization expense for a competing patent purchased in 2018 should be recorded. 4) Total intangible assets to be reported include patents, trademarks, and excess of cost over fair value of acquired subsidiaries. 5) Goodwill arises from the excess of fair value of net assets

Uploaded by

krizzmaaaay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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INTANGIBLES

PROBLEM 1

Nerd Company purchased a patent on January 1, 2013 for P 6,000,000. The original life of the
patent was estimated to be 15 years. However, in December 2018, the controller received information
proving conclusively that the product protected by the patent wooould be obsolete within four years.
The entity decided to write off the unamortized portion of the patent cost over five years beginning in
2018. What is the patent amortization for 2018?

PROBLEM 2

Centennial Company developed a trademark to distinguish its products from those of the
competitors. Through advertising and other means, the entity is seeking to establish significant product
identification to increase future sales. The similarity between the trademark costs and other intangible
and operating costs has caused some confusion over proper accounting. The following items are being
treated as part of the cost of the trademark:

Marketing research to study consumer tastes P 400,000


Design Costs of trademark 1,500,000
Legal fees of registering trademark 150,000
Advertising to establish recognition of trademark 200,000
Registration fee with Patent Office 50,000

What is the initial cost of the trademark?

PROBLEM 3

Bess Company was granted a patent on a product on January 1, 2008 with a 20-year useful life.
To protect the patent, the entity purchased on January 1, 2018 for P 2,250,000 a patent on a competing
product which was originally issued on January 1, 2013. Because of the unique plant, the entity does not
feel the competing patent can be used in producing a product. What is the amortization of the
competing patent for 2018?

PROBLEM 4

At year-end, Vain Company showed the following account balances:

 Patent P 500,000
 Deposit with advertising agency used to promote goodwill 400,000
 Bond Sinking Fund 1,000,000
 Excess of cost over fair value of identifiable net assets of
Acquired subsidiary 4,000,000
 Trademark 900,000
What total amount should be reported as intangible assets?

PROBLEM 5

Pad Company purchased another entity for P 2,500,000 cash. The following carrying amount and fair
value were associated with this acquisition:

CARRYING AMOUNT FAIR VALUE


Accounts Receivable 1,000,000 1,000,000
Inventory 500,000 250,000
Government contact 0 500,000
Equipment 200,000 250,000
Short-Term loan payable (1,000,000) (1,000,000)
Net Assets 700,000 1,000,000

The fair value associated with the acquired entity’s government contract is not based on any legal or
contractual relationship. In addition, for obvious reason, there is no open market tading for an intangible
of this sort. What is the goodwill arising from the acquisition?

PROBLEM 6

Bien Company acquired a trademark relating to the introduction of a new manufacturing process, the
entity incurred the following costs:

 Cost of Trademark P 3,500,000


 Expenditure on promoting the new product 50,000
 Employee benefits relating to the testing of the proper
Functioning of the new process 200,000

What total cost should be capitalized as an intangible asset?

PROBLEM 7

Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six years on
January 1, 2016 for P 5,400,000. The entity used straight line amortization. On January 1, 2018, an new
patent is received for a timed-release version of the same drug. The new patent has a legal and useful
life of twenty years. What is the amount of amortization expense for 2018 ?

PROBLEM 8

Hush Company purchased for cash at P50 per share all 150,000 ordinary shares outstanding of another
entity. The statement of financial position of the acquire on the date of acquisition showed net assets
with a carrying amount og P 6,000,000. The fair value of property, plant, and equipment on same date
was P 800,000 in excess of carrying amount. What amount shiuld be recorded as goodwill on the date of
purchase?
PROBLEM 9

At the beginning of current year, Bruno Company acquired an intangible asset for P 3,000,000. The
intangible asset has an estimated useful life of 10 years. At the current year-end, the intangible asset
was evaluated to determine whether it was impaired. On same date, the fair value less cost of disposal
of the intangible asset is P 2,000,000. The asset is expected to generate future cash flows of P 300,000
annually for the remaining 9 years. The appropriate discount rate is 5%. The present value of an ordinary
annuity of 1 at 5% for nine periods is 7.11. What is the impairment loss to be recognized for the current
year?

PROBLEM 10

Transactions during 2018 of the newly organized Pink Corporation included the following:

Jan. 2 Paid legal fees of P150,000 and stock certificate costs of P83,000 to complete organization of
the corporation.

15 Hired a clown to stand in front of the corporate office for 2 weeks and hound out pamphlets and
candy to create goodwill for the new enterprise. Clown cost, P10,000; pamphlets and candy,
P5,000.

April 1 Patented a newly developed process with costs as follows:

Legal fees to obtain patent P 429,000


Patent application and licensing fees 63,500
Total P 492,500

It is estimated that in 6 years other companies will have developed improved processes, making the Pink
Corporation process obsolete.

May 1Acquired both a license to use a special type of container and a distinctive trademark to be
printed on the container in exchange for 6,000 shares of Pink’s no-par common stock selling for P50 per
share. The license is worth twice as much as the trademark, both of which may be used for 6 years.

July 1Constructed a shed for P1, 310,000 to house prototypes of experimental models to be
developed in future research projects.

Dec. 31 Incurred salaries for an engineer and chemist involved in product development totaling
P1, 750,000 in 2018.

Prepare Journal Entries for 2018.

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