Creative Solutions purchased a patent from Russell Lazarus, an inventor. At the time of the purchase, the patent had two years remaining. The president of Creative Solutions decided to have the accountant amortize the cost of the patent, $200,000, over 10 years rather than two years. His reasoning was that the $200,000 has already been spent and stockholders might ask a lot of questions about a $100,000 expense showing up on the income statement but probably wouldn’t pay much attention to a $20,000 expense. 1. What is Creative Solutions’ ethical responsibility to the company’s stockholders? 2. According to GAAP, how should the amortization of patents be treated? 3. Write a short paragraph explaining similarities and differences between plant assets and intangible assets. 4. In groups of two or three, determine an appropriate method of depreciation, depletion, or amortization of the following assets for financial reporting purposes: (a) a car used as a taxi, (b) a parcel of land that will be resold in a few years, (c) a computer that has a very short life and loses most of its value in the first year or two, (d) an ore mine, and (e) research and development costs incurred to develop a trademark.

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College Accounting, Chapters 1-27 ...

22nd Edition
James A. Heintz + 1 other
Publisher: Cengage Learning
ISBN: 9781305666160
BuyFind

College Accounting, Chapters 1-27 ...

22nd Edition
James A. Heintz + 1 other
Publisher: Cengage Learning
ISBN: 9781305666160

Solutions

Chapter
Section
Chapter 18, Problem 1EC
Textbook Problem

Creative Solutions purchased a patent from Russell Lazarus, an inventor. At the time of the purchase, the patent had two years remaining. The president of Creative Solutions decided to have the accountant amortize the cost of the patent, $200,000, over 10 years rather than two years. His reasoning was that the $200,000 has already been spent and stockholders might ask a lot of questions about a $100,000 expense showing up on the income statement but probably wouldn’t pay much attention to a $20,000 expense.

  1. 1. What is Creative Solutions’ ethical responsibility to the company’s stockholders?
  2. 2. According to GAAP, how should the amortization of patents be treated?
  3. 3. Write a short paragraph explaining similarities and differences between plant assets and intangible assets.
  4. 4. In groups of two or three, determine an appropriate method of depreciation, depletion, or amortization of the following assets for financial reporting purposes: (a) a car used as a taxi, (b) a parcel of land that will be resold in a few years, (c) a computer that has a very short life and loses most of its value in the first year or two, (d) an ore mine, and (e) research and development costs incurred to develop a trademark.

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Chapter 18 Solutions

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Ch. 18 - The following costs were incurred to purchase a...Ch. 18 - The following information is provided for a...Ch. 18 - LO3 A machine costing 350,000 has a salvage value...Ch. 18 - Grandorf Company replaced the engine in a truck...Ch. 18 - Prepare journal entries for the following...Ch. 18 - Popilarz Mining acquired a coal mine at a cost of...Ch. 18 - Todd Company purchased a patent with a remaining...Ch. 18 - What costs should be included when measuring the...Ch. 18 - How should the cost of such activities as planting...Ch. 18 - What are the two major types of depreciation?Ch. 18 - What is meant by the depreciable cost of a plant...Ch. 18 - What are the four most commonly used methods of...Ch. 18 - Which depreciation method provides the fastest...Ch. 18 - Explain how the depreciation method selected...Ch. 18 - For assets acquired after 1986, what depreciation...Ch. 18 - How should additions or improvements representing...Ch. 18 - Explain what is meant by the replacement of a...Ch. 18 - What are the three major ways of disposing of a...Ch. 18 - For what time interval should depreciation expense...Ch. 18 - When a plant asset is sold, what must be known...Ch. 18 - What details about a particular asset are provided...Ch. 18 - What is the purpose of depletion?Ch. 18 - Which depreciation method is similar to the method...Ch. 18 - Over what period of time should the cost of a...Ch. 18 - How should the unamortized portion of the cost of...Ch. 18 - What is a trademark?Ch. 18 - What is a franchise? Name a franchise you have...Ch. 18 - What is goodwill? When is it recognized?Ch. 18 - What is impairment?Ch. 18 - COST OF PROPERTY, PLANT, AND EQUIPMENT Consider...Ch. 18 - STRAIGHT-LINE, DECLINING-BALANCE, AND...Ch. 18 - UNITS-OF-PRODUCTION METHOD The truck purchased in...Ch. 18 - JOURNAL ENTRIES: REPAIRS, MAINTENANCE, ADDITIONS,...Ch. 18 - JOURNAL ENTRIES: DISPOSITION OF PLANT ASSETS...Ch. 18 - DEPLETION Prepare the following entries using a...Ch. 18 - STRAIGHT-LINE, DECLINING-BALANCE,...Ch. 18 - UNITS-OF-PRODUCTION METHOD A machine is purchased...Ch. 18 - CALCULATING AND JOURNALIZING DEPRECIATION...Ch. 18 - IMPACT OF IMPROVEMENTS AND REPLACEMENTS ON THE...Ch. 18 - DISPOSITION OF ASSETS: JOURNALIZING Mitchell Parts...Ch. 18 - DEPLETION: CALCULATING AND JOURNALIZING Mineral...Ch. 18 - INTANGIBLE LONG-TERM ASSETS Track Town Co. had the...Ch. 18 - COST OF PROPERTY, PLANT, AND EQUIPMENT Lam Company...Ch. 18 - STRAIGHT-LINE, DECLINING-BALANCE, AND...Ch. 18 - UNITS-OF-PRODUCTION METHOD The truck purchased in...Ch. 18 - JOURNAL ENTRIES: REPAIRS, MAINTENANCE, ADDITIONS,...Ch. 18 - JOURNAL ENTRIES: DISPOSITION OF PLANT ASSETS...Ch. 18 - DEPLETION Prepare the following entries using a...Ch. 18 - STRAIGHT-LINE, DECLINING-BALANCE,...Ch. 18 - UNITS-OF-PRODUCTION METHOD A machine is purchased...Ch. 18 - CALCULATING AND JOURNALIZING DEPRECIATION...Ch. 18 - IMPACT OF IMPROVEMENTS AND REPLACEMENTS ON THE...Ch. 18 - DISPOSITION OF ASSETS: JOURNALIZING Mayer Delivery...Ch. 18 - DEPLETION: CALCULATING AND JOURNALIZING Mining...Ch. 18 - INTANGIBLE LONG-TERM ASSETS B. J. Bakery had the...Ch. 18 - A friend owns and operates her own business and is...Ch. 18 - Creative Solutions purchased a patent from Russell...Ch. 18 - On April 1, 20-3, Kwik Kopy Printing purchased a...Ch. 18 - Don Burnette is starting a new home planning...

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