Question

Cullumber Limited organized late in 2022 and set up a single account for all intangible assets. The following summary shows the entries in 2023 (all debits) that have been recorded in Intangible Assets since then: Jan. 2 Purchased patent (8-year life) $342,000 Mar. 31 Costs to search for new ways to apply patent that was purchased on Jan. 2 21,000 Apr. 1 Purchased goodwill (indefinite life) 315,000 July 1 Purchased franchise with 10-year life; expiration date July 1, 2033 248,000 1 Promotion

Answer 1

Cullumber Limited's accounting for intangible assets in 2023 reflects the purchase of a patent, costs associated with patent development, goodwill, and a franchise, each handled according to its nature and useful life. The increasing trend in patent filings since the 1990s is associated with technological advancements like the internet.

Step-by-step explanation:

The entry dated January 2, for the purchase of a patent with an 8-year life for $342,000, indicates the capitalization of this intangible asset. The costs incurred on March 31 in the amount of $21,000 to search for new ways to apply this patent should also be capitalized since they are directly associated with developing the patent's utility.

In contrast, the April 1 purchase of goodwill, with its indefinite life, will not be amortized but instead be subject to annual impairment tests to evaluate if its value has declined. The July 1 entry for the purchase of a franchise with a 10-year life reflects another type of intangible asset, which will be amortized over its useful life, meaning the cost will be spread out over the duration of ten years. These activities are reflective of the trend observed beginning in the 1990s, where the number of applications filed for patents increased significantly, a surge partly attributed to innovations such as the internet.