4. Costs associnted with various intangibles of a company may either be expensed

Question

4. Costs associnted with various intangibles of a company may either be expensed when incurred or capitalized and amortized. Such costs might be recorded in any of the following ways: a. b. c. d. charged to the patent account and amortized charged to the franchise account and amortized charged to other appropriate asset accounts and amortized or depreciated charged to expense when incurred Required Indicate how each of the following costs should be recorded by placing the appropriate letter (a-d) in the space provided. -1. Initial fee to acquire a franchise 2. Design, construction, and testing of preproduction prototypes and models 3. Legal costs incurred in connection with a successful patent application. 4· Laboratory research aimed at discovery of new knowledge. Cost of purchased equipment that will be used in a series of R&D; projects overa ten-year period. --6. Legal costs of the initial incorporation of a business. 7. Cost of a long-term lease of land containing mineral deposits. Annual service fee paid to the franchiser's headquarters for administrative services 8. rendered to the franchisee.

Explanation / Answer

Answer

The following costs should be recorded by placing the appropriate letter (a-d) in the space provided:

B.

charged to the franchise account and amortized

A.

charged to the patent account and amortized

A.

charged to the patent account and amortized

A.

charged to the patent account and amortized

C.

charged to other appropriate asset accounts and amortized or depreciated

These are pre-incorporation expenses not related to patents so,charged to other appropriate asset accounts and amortized or depreciated.

C.

charged to other appropriate asset accounts and amortized or depreciated

C.

charged to other appropriate asset accounts and amortized or depreciated

D.

charged to expense when incurred

Particulars Reason/Explanation Corret answer Initial fee to acquire a franchise. It should be added to the cost of franchise and to be amortised,because This is a capital expenditure.

B.

charged to the franchise account and amortized

Design, construction, and testing of preproduction prototypes and models. All three listed costs are included in research and development expense. So,charged to the patent account and amortized, because costs are incurred before developments of some patents and rae considered as capital expense

A.

charged to the patent account and amortized

Legal costs incurred in connection with a successful patent application. charged to the patent account and amortized,because

A.

charged to the patent account and amortized

Laboratory research aimed at discovery of new knowledge. charged to the patent account and amortized,because costs are perdelopment of patent.

A.

charged to the patent account and amortized

Cost of purchased equipment that will be used in a series of R&D projects over a ten-year period. Equipment has an alternative future use for the asset.hence charged to other appropriate asset accounts and amortized or depreciated.

C.

charged to other appropriate asset accounts and amortized or depreciated

Legal costs of the initial incorporation of a business.

These are pre-incorporation expenses not related to patents so,charged to other appropriate asset accounts and amortized or depreciated.

C.

charged to other appropriate asset accounts and amortized or depreciated

Cost of a long-term lease of land containing mineral deposits. Land has an alternative future use for the asset.hence charged to other appropriate asset accounts and amortized or depreciated.

C.

charged to other appropriate asset accounts and amortized or depreciated

Annual service fee paid to the franchiser's headquarters for administrative services rendered to the franchisee. Not related to pattents, these are revenue expense hence,charged to expense when incurred.

D.

charged to expense when incurred

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