Question

P12.4 Monsecours Corp., a public company incorporated on June 28, 2019, set up a single account for all of its intangible assets. The following summary discloses the debit entries that were recorded during 2019 and 2020 in that account:

Intangible Assets—Monsecours
July  1, 2019		8-year franchise; expiration date of June 30, 2027		$ 35,000
Oct.  1		Advance payment on office lease (2-year lease)		25,000
Dec. 31		Net loss for 2019 including incorporation fee, $1,000; related  legal fees of organizing, $5,000; expenses of recruiting and  training staff for start-up of new business, $3,800		17,000
Feb. 15, 2020		Patent purchased (10-year life)		65,400
Mar. 1		Direct costs of acquiring a 5-year licensing agreement		86,000
Apr. 1		Goodwill purchased (indefinite life)		287,500
June 1		Legal fee for successful defence of patent (see above)		13,350
Dec. 31		Costs of research department for year		75,000
31		Royalties paid under licensing agreement (see above)		2,775

The new business started up on July 2, 2019. No amortization was recorded for 2019 or 2020. The goodwill purchased on April 1, 2020, includes in-process development costs that meet the six development stage criteria, valued at $175,000. The company estimates that this amount will help it generate revenues over a 10-year period.

Instructions

a. Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as at December 31, 2020, and record any necessary amortization so that all balances are appropriate as at that date. State any assumptions that you need to make to support your entries.

b.  In what circumstances should goodwill be recognized? From the perspective of an investor, does the required recognition and measurement of goodwill provide useful financial statement information?

Answer 1