Question

Bluestone Company had three intangible assets at the end of the current year:

a. A patent purchased this year from Miller Co. on January 1 for a cash cost of $3,600. When purchased, the patent had an estimated life of 12 years.
b. A trademark was registered with the federal government for $8,000. Management estimated that the trademark could be worth as much as $200,000 because it has an indefinite life.
c. Computer licensing rights were purchased this year on January 1 for $90,000. The rights are expected to have a six-year useful life to the company.

Required:
a. Compute the acquisition cost of each intangible asset.
b. Compute the amortization of each intangible for the current year ended December 31.
c. Show how these assets and any related expenses should be reported on the balance sheet and income statement for the current year.

Answer 1

The acquisition cost of each intangible asset is $3,600 for the patent, $8,000 for the trademark, and $90,000 for the computer licensing rights. The annual amortization expense is $300 for the patent and $15,000 for the computer licensing rights. The assets should be reported on the balance sheet at their acquisition costs, and the amortization expenses should be reported on the income statement.

Step-by-step explanation:

a. Acquisition cost of each intangible asset:

1. The acquisition cost of the patent is $3,600, which represents the cash cost of purchasing it from Miller Co.
2. The acquisition cost of the trademark is $8,000, which is the amount spent to register it with the federal government.
3. The acquisition cost of the computer licensing rights is $90,000, which reflects the purchase cost of the rights.

b. Amortization of each intangible for the current year:

1. The patent has an estimated useful life of 12 years, so the annual amortization expense would be $300 ($3,600/12).
2. The trademark has an indefinite life, so it is not subject to amortization.
3. The computer licensing rights have a useful life of 6 years, so the annual amortization expense would be $15,000 ($90,000/6).

c. Reporting of assets and related expenses:

• On the balance sheet, the patent, trademark, and computer licensing rights would be classified as intangible assets and reported at their acquisition costs.
• Amortization expense related to the patent and computer licensing rights would be recorded on the income statement as an operating expense.

Answer 2

Bluestone Company

a. The acquisition cost of each intangible asset:

a. Patent $3,600

b. Trademark $8,000

c. Licensing Rights $90,000

b. The amortization of each intangible asset for the current year ended December 31:

a. Patent $3,600/12 = $300

b. Trademark $8,000 indefinite life $0

c. Licensing Rights $90,000/6 = $15,000

c. Balance Sheet as of December 31, of the current year:

Intangible Asset:

a. Patent $3,600

b. Trademark 8,000

c. Licensing Rights 90,000

Total Intangible $101,600

less amortization 15,300

Net book value $86,300

Income Statement for the year ended December 31 of the current year.

Amortization Expenses:

a. Patent $300

c. Licensing Rights $15,000

Step-by-step explanation:

a) Data and Analysis:

a. Patent $3,600 Cash $3,600

b. Trademark $8,000 Cash $8,000

c. Licensing Rights $90,000 Cash $90,000

a. Acquisition cost of each intangible asset:

a. Patent $3,600

b. Trademark $8,000

c. Licensing Rights $90,000

b. Amortization of each intangible asset:

a. Patent $3,600/12 = $300

b. Trademark $8,000 indefinite life $0

c. Licensing Rights $90,000/6 = $15,000