Last year SAM, Inc., had the following expenditures related to developing its tr
ID: 2508447 • Letter: L
Question
Last year SAM, Inc., had the following expenditures related to developing its trademark: General advertising costs Advertising specifically focused on trademark Legal fees to register trademark Legal fees for successful defense of new trademark $224,000 45,600 550 75,000 Total $345,150 During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all the above as costs of the trademark. Management contends that all of the costs increase the value of the trademark and, therefore, should be capitalized 31. Which of the above costs should NOT be capitalized? 32. $ What is the total cost that should be capitalized to the trademark account?Explanation / Answer
Soln. for 31) Expenses related to advertising or promotion are not permitted to be capitalized, and hence they should be expensed out in the period when they are incurred. Accordingly, General Advertising Costs (amounting $224,000) and Advertising specifically focused on trademark (to the tune of $45,600) should not be capitalized.
Soln. for 32) Costs which are incurred for creation (e.g. legal fees incurred for registration) or acquisition of trademarks should be capitalized, and subsequently amortized. It also includes legal fees incurred for defending the trademark. Correspondingly, $75,550 (Sum of Legal Costs) should be capitalized.
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