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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Munn Inc. had the following intangible account balance at December 31, 2018:

Chapter 12, Problem 8P, Munn Inc. had the following intangible account balance at December 31, 2018: Information relating to

Information relating to Munn’s patent and transactions involving other intangible assets during 2019 includes the following:

  1. a. The patent was purchased from Grey Company for $192,000 on January 1, 2017, at which time the remaining legal life was 16 years. On January 1, 2019, Munn determined that the useful life of the patent was only 8 years from the date of acquisition.
  2. b. On January 2, 2019, in connection with the purchase of a trademark from Cody Corporation, the parties entered into a noncompete agreement and a consulting contract. Munn paid Cody $800,000, of which three-quarters was for the trademark and one-quarter was for Cody’s agreement not to compete for a 5-year period in the line of business covered by the trademark. Munn considers the life of the trademark to be indefinite. Under the consulting contract, Munn agreed to pay Cody $50,000 annually on January 2 for 5 years. The first payment was made on January 2, 2019. The trademark is not impaired at the end of 2019.

    Required:

  3. a. Prepare a schedule of the expenses for 2019 relating to Munn’s intangible asset balances at December 31, 2018, and transactions during 2019.
  4. b. Prepare the intangible assets section of Munn’s balance sheet at December 31, 2019.

1.

To determine

Prepare a schedule for the expenses related to intangible assets of Company M at December 31, 2019.

Explanation

Intangible assets: These are the long-term assets which are not physical in nature, but possess value. The intangible assets would be amortized over their definite useful life or limited useful life, and those with indefinite or unlimited lives are not amortized.

Prepare a schedule of the expenses related to intangible assets of Company M at December 31, 2019 as follows:

Company M
Schedule of expenses relating to intangible assets
For the year ended December 31, 2019
ParticularsAmount
Amortization of intangibles: 
Patent (1)$28,000
Non-compete agreement (2)$40,000
Total$68,000

Table (1)

Working note (1):

Calculate the amortization of patent.

Amortization of patent = Patent balance on December 31, 2019(Life of patentYear incurred)

2.

To determine

Prepare the intangible assets section of Company M’s balance sheet at December 31, 2019.

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