CHAPTER 21: Intangible Assets

RECOGNITION
Problem 1
Clark Kent Company reported the following data at the end of 2018:
Franchise 1,000,000
Computer software 1,500,000
Deferred charges 100,000
Patent 2,500,000
Customer list purchased 500,000
Copyright 700,000
Deposit with advertising agency to promote goodwill 400,000
Bond sinking fund 1,300,000
Excess of cost over fair value of identifiable net assets of acquired subsidiary 4,000,000
Trademark 900,000
Research and development cost 2,000,000

What total amount should be reported as intangible assets?

a. 11,100,000
b. 11,500,000
c. 10,600,000
d. 13,100,000

Problem 2

Diana Prince Company developed a new machine for manufacturing baseballs. Because the
machine is considered very valuable, the entity had it patented.

The following expenditures were incurred in developing and patenting the machine:

Purchase of special equipment to be used solely for development

Of the new machine 1,800,000
Research salaries and fringe benefits for engineers and scientists 200,000
Cost of testing prototype 250,000
Legal cost for filing of patent 150,000
Fees paid to government patent office 50,000
Drawings required by the patent office to be filed with patent application 40,000

What amount should be capitalized as cost of patent?

a. 240,000
b. 540,000
c. 740,000
d. 200,000
What amount of research and development cost should be expensed in the current year?
a. 2,250,000
b. 2,000,000
c. 2,490,000
d. 1,800,000

Problem 3

Bruce Wayne Company developed a trademark to distinguish its products from those of the
competitors. The company incurred the following:

Marketing research to study consumer tastes 400,000

Design cost of trademark 1,500,000
Legal fee of registering trademark 150,000
Advertising to establish recognition of trademark 200,000
Registration fee with Intellectual Property Office 50,000

What amount should be capitalized as cost of trademark?

a. 1,700,000
b. 1,900,000
c. 2,300,000
d. 2,100,000

AMORTIZATION

Problem 1

Lex Luthor Company bought a franchise at the beginning of current year for P2,040,000. An
independent consultant estimated that the remaining useful life of the franchise was 50 years.

The unamortized cost of the franchise was P680,000. The entity decided to amortize the
franchise over the maximum period allowed.

What amount should be recorded as amortization for franchise for the current year?
a. 40,800
b. 40,000
c. 51,000
d. 17,000
Problem 2

At the beginning of current year, Arthur Curry Company bought a trademark for P500,000. The
entity retained an independent consultant who determined the remaining useful life of the
trademark to be fifty (50) years. The unamortized cost of the trademark P380,000.

What amount should be reported as amortization of trademark for the current year?
a. 10,000
b. 12,500
c. 9,500
d. 7,600

Problem 3

Barry Allen Company purchased a patent on January 1, 2013 for P6,000,000. The original
useful life was estimated to be 15 years.

However, in December 2018, the management received information proving conclusively that
the product protected by the Barry Allen patent would be obsolete within four years.
Accordingly, the entity decided to write off the unamortized cost of the patent over five years
beginning in 2018.

What is the patent amortization for 2018?

a. 1,200,000
b. 1,000,000
c. 800,000
d. 400,000