Question

In: Accounting

The intangible assets section of Salmiento Corporation’s balance sheet at Decem- ber 31, 2010, is presented...

The intangible assets section of Salmiento Corporation’s balance sheet at Decem-
ber 31, 2010, is presented here.
Patents ($60,000 cost less $6,000 amortization) $54,000
Copyrights ($36,000 cost less $25,200 amortization) 10,800
Total $64,800
The patent was acquired in January 2010 and has a useful life of 10 years. The copyright
was acquired in January 2004 and also has a useful life of 10 years. The following cash
transactions may have affected intangible assets during 2011.
Jan. 2 Paid $45,000 legal costs to successfully defend the patent against in-
fringement by another company.
Jan.–June Developed a new product, incurring $210,000 in research and development
costs. A patent was granted for the product on July 1, and its useful life is
equal to its legal life. Legal and other costs for the patent were $20,000.
Sept. 1 Paid $40,000 to a quarterback 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 and
legal life of 50 years.
Instructions
(a) Prepare journal entries to record the transactions.
(b) Prepare journal entries to record the 2011 amortization expense for intangible assets.
(c) Prepare the intangible assets section of the balance sheet at December 31, 2011.
(d) Prepare the note to the financial statements on Salmiento Corporation’s intangible
assets as of December 31, 2011.

Solutions

Expert Solution

Ans:

A). Journal Entries

Date Account title and explanation Debit($) Credit($)
Jan 2 Patents 45,000
Cash 45,000
( to record the legal costs incurred to defend the patent)
Jan-June Research and Development Expense 210,000
Cash 210,000
{ to record the research and development costs incurred}
Sep 1 Advertising Expense 40,000
   Cash 40,000
( to record the advertising Expense)
Oct 1 Copyright 200,000
Cash 200,000
(to record the cost acquired for Copyright)

B). To record the 2011 amortization expense for intangible assets:

Date Account title and explanation Debit($) Credit($)
2 Jan Amortization Expense- Patents 11,500
Patents 11,500
{to record amortization expense of patents}
=> 60,000/10)+45,000/9+20,000/20*6/12=
Jan-June Amortization Expense- Copyright 4,600
Cash 4,600
{ to record amortization Expense of Copyright}
=> 36,000/10)+(200,000/50*3/12}=

C). Intangible Section :

=> Balance Sheet As At December 31,2011

Particulars Amount($)
Patents{60,000+45,000+20,000-6000-11,500) 113,500
Copyright(36,000+200,000-25,200-4,600) 206,200
Total 319,700

ekkarill92 answered 2 years ago
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