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

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