The intangible assets section of Time Company at December 31, 2011, is presented
ID: 2671935 • Letter: T
Question
The intangible assets section of Time Company at December 31, 2011, is presented below.Patent ($100,000 cost less $10,000 amortization) $90,000
Copyright ($60,000 cost less $24,000 amortization) $36,000
$126,000
The patent was acquired in January 2011 and has a useful life of 10 years. The copyright was acquired in January 2008 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2012.
Jan 2 Paid $45,000 legal costs to successfully defend the patent against infringement by another company.
Jan-June Developed a new product, incurring $230,000 in research and development cost. A patent was granted for the product on July 1. Its useful life is equal to its legal life.
Sept 1 Paid $125,000 to an Xgames star to appear in commercials advertising the company’s products. The commercials will air in September and October.
Oct 1 Acquired a copyright for $200,000. The copyright has a useful life of 50 years.
Instructions:
a. Prepare journal entries to record the transactions above.
b. Prepare journal entries to record the 2012 amortization expense for intangible assets.
c. Prepare the intangible assets section of the balance sheet at December 31, 2012.
d. Prepare the not to the financials on Time’s intangibles as of December 31, 2012.
Explanation / Answer
Date Title of account Debit Credit a 2-Jan Patents 45000 Cash 45000 1-Jul Patents 230000 Cash or Research Dev. Cost 230000 1-Sep Prepaid Advertising Expenses 125000 Cash 125000 1-Oct Copyright 200000 Cash 200000 b 31-Dec Amortization expense 26500 Patents 26500 10000+45000/9+230000/20 31-Dec Amortization expense 7000 Copyright 7000 6000+200000/600*3 c The intangible assets section of Time Company at December 31, 2012, is presented below. Patent ($375,000 cost less $36500 amortization) $ 338500 Copyright ($260,000 cost less $31,000 amortization) 229,000 Total $567500 d Notes All intangible assets are recorded at cost less amorization expenses. The amortization is done based on straight line method using useful life of the intangible assets for amortization purpose. The legal fees incurred to defend the Patents for $45000 has been capitalized
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