Munn Inc. had the following intangible account balance at December 31, 2015: Pat
ID: 2482009 • Letter: M
Question
Munn Inc. had the following intangible account balance at December 31, 2015: Patent $168,000 Information relating to Munn’s patent and transactions involving other intangible assets during 2016 includes the following: The patent was purchased from Grey Company for $192,000 on January 1, 2014, at which time the remaining legal life was 16 years. On January 1, 2016, Munn determined that the useful life of the patent was only 8 years from the date of acquisition. On January 2, 2016, in connection with the purchase of a trademark from Cody Corporation, the parties entered into a noncompete agreement and a consulting contract. Munn paid Cody $800,000, of which three-quarters was for the trademark and one-quarter was for Cody’s agreement not to compete for a 5-year period in the line of business covered by the trademark. Munn considers the life of the trademark to be indefinite. Under the consulting contract, Munn agreed to pay Cody $50,000 annually on January 2 for 5 years. The first payment was made on January 2, 2016. The trademark is not impaired at the end of 2016. Required 1. Prepare a schedule of the expenses for 2016 relating to Munn’s intangible asset balances at December 31, 2015, and transactions during 2016. Enter all amounts as positive numbers.
Explanation / Answer
Answer 1. Munn Inc. Schedule of Expenses Relating to Intangible Assets For the year ended Dec. 31, 2016 Amortization of Intangibles Patent - $168000 / 6 Years (Remaining Life) 28,000 Non-Competing Agreement 40,000 Total 68,000 Consulting Fees Paid to Cody Corporation 50,000 Cost of Non Competion Agreement = $800000 X 1/4 = $200000 Amortization of Non Competing Agreement = $200000 / 5 Years = $40000
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