Wyatt Company had four intangible assets at the end of 2018

Wyatt Company had four intangible assets at the end of 2018 (end of the fiscal year):

a) Computer software and Web development technology purchased on January 1, 2018, for $ 70,000. The technology is expected to have a useful life of four years.

b) A patent purchased from R. Jay on January 1, 2018, for a cash cost of $ 6,000. Jay had registered the patent with the Canadian Intellectual Property Office seven years earlier on January 1, 2008. The cost of the patent is amortized over its legal life.

c) A lease on some property for a five-year term beginning January 1, 2018. The company immediately spent $ 7,800 cash for long-lived improvements (estimated useful life, eight years; no residual value). At the termination of the lease, there will be no recovery of these improvements.

d) A trademark that was internally developed and registered with the Canadian government for $ 13,000 on November 1, 2017. Management decided that the trademark has an indifinite life.

Required:

1) What is the acquistioncost of each intangible asset?

2) Compute the amortization of each intangible asset at December 31, 2018. The company does not use contra accounts.

3) Show how these assets and any related expenses should be reported on the statement of financial position at December 31, 2018, and on the statement of earnings for 2018.

Solution

1)

a) $ 70000

b) $ 6000

c) $ 7800

d) 0 because trademark was internallly developed and not acquired

2)

a) $ 70000/4 = $ 17500

b) Details missing as of the legal life of the patent

c) $ 7800 / 8 = $ 975

d) No ammortization, cost is impared on yearly basis to the level of fair value

3)

Assets should be shown as intangible assets at their carry value for a, b and c where as for d value should be based upon fair value adjusted yearly in statement of financial position. Amount would be

For a, $ 52500

For b, legal life not given

For c, $ 6825

For d, it is assumed fair value be $ 13000 only

Amortization would be shown in statement of earnings as item of expenses. Amount would be

For a, $ 17500

For b, legal life not given

For c, 975

For d, no ammoritization