Exam 12: Intangibles

Which of the following describes the appropriate accounting for intangible assets with a finite life?

Costs associated with various intangibles of a company may either be expensed when incurred or capitalized and amortized. Such costs might be recorded in any of the following ways: a.charged to the patent account and amortized b.charged to the franchise account and amortized c.charged to other appropriate asset accounts and amortized or depreciated d.charged to expense when incurred Required: Indicate how each of the following costs should be recorded by placing the appropriate letter (a-d) in the space provided.

List 3 activities that can be included in R&D.

The following costs were incurred by Mark Corporation during 2014: Legal fees paid to attorneys in connection with a patent application related to a new invention developed by the company's laboratory personnel: $40,000. Salaries of personnel involved in searching for applications of new research findings: $150,000. Cost of machinery acquired on January 1, 2014: $355,000. The machinery will be used in a current research and development project, as well as several other R&D projects over the next eight years, after which the machine is expected to be sold for $15,000. Mark Corporation uses straight-line depreciation. Costs of design, construction, and testing of preproduction prototypes of potential new product lines for the company: $70,000. Cost of developing a valuable new product that was successfully patented: $100,000. Cost of marketing research to promote the new product: $60,000. Required: a.Calculate the total research and development expense that should appear in Mark's 2014 income statement. b.For any of the above items you exclude from the 2014 expense amount, indicate the proper accounting treatment.

The Lane Company incurred the following expenditures in January 2014: (1) research and development costs of $510,000 that resulted in a new product that was patented near year-end, (2) $12,000 in legal fees to have the patent registered, (3) $100,000 in advertising costs to develop a trademark for the newly patented product, (4) Legal fees of $8,000 incurred with the registration of the trademark, which will only be used for five years, and (5) $25,000 of advertising costs to promote its good name. Benefits to be derived from the patent are expected to last for five years. The president believes the promotion of Lane's good name will benefit the firm for three years. How much amortization expense should Lane recognize for 2014?