Bluestone Company had three intangible assets at the end of the current year: a.

Question

Bluestone Company had three intangible assets at the end of the current year: a. A patent purchased this year from Miller Co. on January 1 for a cash cost of $5,600. When purchased, the patent had an estimated life of 8 years. b. A trademark was registered with the federal government for $12,500. Management estimated that the trademark could be worth as much as $290,000 because it has an indefinite life. c. Computer licensing rights were purchased this year on January 1 for $48,000. The rights are expected to have a four-year useful life to the company

Explanation / Answer

1) The acquisition cost of the intangibles will be:

a) Patent acquisition cost = $5,600

The entry on January 1, would be:

Patents Dr               5,600

      Cash                                  5,600

b) The acquisition cost of the trade mark = $12,500

The entry for acquisition will be:

Trade Mark Dr 12,500

     Cash Cr                  12,500

c) Acquisition cost of Computer licence = $48,000

The entry for the purchase will be:

Computer licence Dr 48,000

     Cash Cr                                48,000

2) Amortization for the year:

a) Patent = 5600/8 = $700

b) Trademark is not amortized as it has indefinite life.

c) Computer licence = 48000/4 = $12,000

3) Reporting:

BALANCE SHEET (Partial)

Intangible Assets (Note 1) $53,400

INCOME STATEMENT (Partial)

as part of continuing operations:

Amortization Expense      $12,700

Intangible Assets: Amortized As of december 31 Gross Accumulated carrying Amortization amount Patent 5,600 700 Computer licence 48,000 12,000 53,600 12,700 Unamortized Trade Mark 12,500 66,100 Aggregate Amortization Expense                     12,700

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