Question

Coral Corporation began operating as a business in 2017. During January 2017, the company paid $300,000 in design costs to develop its trademark and $250,000 in legal and registration fees to secure the trademark. During October 2017, the company successfully defended its trademark, paying an additional $150,000 in legal fees during the process. At what amount should Coral Corporation report its trademark on its December 31, 2017 balance sheet?

Answer 1

Coral Corporation should report its trademark at $550,000 on its December 31, 2017 balance sheet, which includes the initial design and legal registration costs but not the subsequent legal defense costs.

Step-by-step explanation:

The student is asking how to report the trademark valuation on the company's balance sheet as of December 31, 2017. According to accounting principles, the initial cost of obtaining the trademark, including design costs and legal and registration fees, should be capitalized. Therefore, the initial capitalization amount would be the sum of $300,000 (design costs) plus $250,000 (legal and registration fees), totaling $550,000. However, the subsequent legal fees of $150,000 incurred in defending the trademark in October would generally be expensed and not capitalized unless they add to the trademark's value. Assuming that these legal fees were simply defensive and did not add to the underlying value of the trademark, the amount reported as an asset on the balance sheet for the trademark would still be $550,000.