FUNDAMENTALS OF FINANCIAL ACCOUNTING
6th Edition
ISBN: 9781260664386
Author: PHILLIPS, LIBB
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 9, Problem 10E
Evaluating the Impact of Estimated Useful Lives of Intangible Assets
Amazon, Alphabet, and TripAdvisor rely on various intangible assets to operate their businesses. These companies amortize the cost of these assets using the straight-line method over the following average estimated useful lives (in years), as reported in their 2015 annual reports.
Required:
Based on these estimates, identify the company that uses the longest periods for amortizing most of its classes of intangible assets. Will these estimates increase or decrease that company’s net income relative to its competitors? Explain.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Danube, Toggle, and ConnectOn rely on various intangible assets to operate their businesses. These companies amortize the cost of these assets using the straight-line method over the following average estimated useful lives (in years), as reported in their 2015 annual reports.
Type of Intangible Asset
Danube
Toggle
ConnectOn
Developed Technology
3.5
10.0
2.5
Trade Names
2.3
4.6
1.2
Customer Relationships
2.1
6.2
3.1
Assume each company spent $840,000 at the beginning of the current year for additional Developed Technology. Because of its proprietary nature, the technology is estimated to have no residual value at the end of its estimated life.
Required:
Calculate the impact (direction and amount) that the amortization of such expenditures would have on each company’s Income from Operations in the current year.
Sheridan Company has provided information on intangible assets as follows.
• Sheridan incurred research and development costs in 2017 as follows.
Materials and equipment
$166,000
Personnel
284,000
Indirect costs
21,400
$471,400
Sheridan estimates that these costs will be recouped by December 31, 2020. The materials and equipment purchased have no
alternative uses.
• A patent was purchased from Crane Company for $1,090,000 on January 1, 2016. Sheridan estimated the remaining useful life of
the patent to be 10 years. The patent was carried in Crane's accounting records at a net book value of $2,250,000 when Crane sold it
to Sheridan.
• During 2017, a franchise was purchased from Clinton Company for $355,000. In addition, 5% of revenue from the franchise must be
paid to Clinton. Revenue from the franchise for 2017 was $1,300,000. Sheridan estimates the useful life of the franchise to be 1O
years and takes a full year's amortization in the year of purchase.
• On January 1, 2017, because of…
Conceptual Question
Identify whether or not each of the following items should be capitalized as intangible
assets from the following list. Explain your reason with relevant accounting standard.
Capitalised
Not capitalized
Employment costs of staff conducting
research activiities
Cost of constructing a working model of
a new product
License purchased to permit production
and sale of a product for ten years
Chapter 9 Solutions
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Ch. 9 - Define long-lived assets. What are the two common...Ch. 9 - Under the cost principle, what amounts should be...Ch. 9 - What is the term for recording costs as assets...Ch. 9 - 4. Waste Management, Inc., regularly incurs costs...Ch. 9 - Distinguish between ordinary repairs and...Ch. 9 - Describe the relationship between the expense...Ch. 9 - Why are different depreciation methods allowed?Ch. 9 - In computing depreciation, three values must be...Ch. 9 - Prob. 9QCh. 9 - After merging with Northwest Airlines, Delta...
Ch. 9 - A local politician claimed, to reduce the...Ch. 9 - What is an asset impairment? How is it accounted...Ch. 9 - What is book value? When equipment is sold for...Ch. 9 - Prob. 14QCh. 9 - Prob. 15QCh. 9 - FedEx Corporation reports the cost of its aircraft...Ch. 9 - Prob. 17QCh. 9 - Prob. 18QCh. 9 - (Supplement 9A) How does depletion affect the...Ch. 9 - (Supplement 9B) Over what period should an...Ch. 9 - Prob. 1MCCh. 9 - Prob. 2MCCh. 9 - Prob. 3MCCh. 9 - A company wishes to report the highest earnings...Ch. 9 - Barber, Inc., depreciates its building on a...Ch. 9 - Thornton Industries purchased a machine on July 1...Ch. 9 - ACME. Inc., uses straight-line depreciation for...Ch. 9 - What assets should be amortized using the...Ch. 9 - Prob. 9MCCh. 9 - The Simon Company and the Allen Company each...Ch. 9 - Classifying Long-Lived Assets and Related Cost...Ch. 9 - Prob. 2MECh. 9 - Prob. 3MECh. 9 - Computing Book Value (Straight-Line Depreciation)...Ch. 9 - Computing Book Value (Units-of-Production...Ch. 9 - Computing Book Value (Double-Declining-Balance...Ch. 9 - Calculating Partial-Year Depreciation Calculate...Ch. 9 - Recording Asset Impairment Losses After recording...Ch. 9 - Recording the Disposal of a Long-Lived Asset...Ch. 9 - Reporting and Recording the Disposal of a...Ch. 9 - Prob. 11MECh. 9 - Prob. 12MECh. 9 - Computing and Evaluating the Fixed Asset Turnover...Ch. 9 - (Supplement 9A) Recording Depletion for a Natural...Ch. 9 - Prob. 15MECh. 9 - Prob. 1ECh. 9 - Prob. 2ECh. 9 - Determining Financial Statement Effects of an...Ch. 9 - Prob. 4ECh. 9 - Determining Financial Statement Effects of...Ch. 9 - Computing Depreciation under Alternative Methods...Ch. 9 - Computing Depreciation under Alternative Methods...Ch. 9 - Prob. 8ECh. 9 - Demonstrating the Effect of Book Value on...Ch. 9 - Evaluating the Impact of Estimated Useful Lives of...Ch. 9 - Calculating the Impact of Estimated Useful Lives...Ch. 9 - Prob. 12ECh. 9 - Prob. 13ECh. 9 - Computing and Interpreting the Fixed Asset...Ch. 9 - Computing Depreciation and Book Value for Two...Ch. 9 - Prob. 16ECh. 9 - Prob. 17ECh. 9 - Computing Acquisition Cost and Recording...Ch. 9 - Prob. 2CPCh. 9 - Analyzing and Recording Long-Lived Asset...Ch. 9 - Computing Acquisition Cost and Recording...Ch. 9 - Recording and Interpreting the Disposal of...Ch. 9 - Prob. 3PACh. 9 - Prob. 4PACh. 9 - Computing Acquisition Cost and Recording...Ch. 9 - Recording and Interpreting the Disposal of...Ch. 9 - Analyzing and Recording Long-Lived Asset...Ch. 9 - Prob. 4PBCh. 9 - Accounting for Operating Activities (Including...Ch. 9 - Prob. 1SDCCh. 9 - Prob. 2SDCCh. 9 - Ethical Decision Making: A Mini-Case Assume you...Ch. 9 - Critical Thinking: Analyzing the Effects of...Ch. 9 - Prob. 7SDCCh. 9 - Accounting for the Use and Disposal of Long-Lived...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Estimate the average total estimated useful life of depreciable property, plant, and equipment. Starbucks reports 580.6 million of depreciation and amortization in the statement of cash flows, of which 4.5 million relates to amortization of limited-life intangible assets. Does the estimate reconcile with stated accounting policy on useful lives for property, plant, and equipment? Explain.arrow_forwardplease answer within the format by providing formula the detailed workingPlease provide answer in text (Without image)Please provide answer in text (Without image)Please provide answer in text (Without image)arrow_forwardAn intangible asset with an estimated useful life of30 years was acquired on January 1, 2007, for $540,000.On January 1, 2017, a review was made of intangibleassets and their expected service lives, and it was determinedthat this asset had an estimated useful life of 30more years from the date of the review. What is theamount of amortization for this intangible in 2017?arrow_forward
- Nonearrow_forwardsarrow_forwardLJH Bhd used the cost method to record its intangible assets and estimated the useful life of the development costs to be five years beginning year 2017. Due to the low demand in the market for the new products, LJH Bhd estimated that the recoverable amount for the development costs was only RM450,000 at the end of the year 2018. Required: a) Calculate the amount of development costs that can be capitalized as at 31 December 2017. B)Prepare the relevant journal entries in year 2017 and 2018. c)Briefly explain the appropriate accounting treatment if there is no foreseeable limit to the period over which the development cost is expected to generate net cash flows for LJH Bhd according to MFRS138 Intangible Assets.arrow_forward
- Prepare entries to set up appropriate accounts for different intangibles; amortize intangible assets. (LO 4) Depr E10-13B Roppls answer the following: 1) Make journal entry to record purchase 2) Calculate amortization for 2017. Make journal entry to record amortization expense. 3) Find the ending balance of each of the intangibles.arrow_forward7 Danube, Toggle, and ConnectOn rely on various intangible assets to operate their businesses. These companies amortize the cost of these assets using the straight-line method over the following average estimated useful lives (in years), as reported in their 2015 annual reports. 5 polnts Type of Intangible Asset Developed Technology Trade Names Customer Relationships Danube Toggle ConnectOn 4.0 7.0 2.0 2.4 4.7 2.1 еВook 2.2 6.3 3.1 Hint Assume each company spent $700,000 at the beginning of the current year for additional Developed Technology. Because of its proprietary nature, the technology is estimated to have no residual value at the end of its estimated life. Print Required: Calculate the impact (direction and amount) that the amortization of such expenditures would have on each company's Income from Operations in the current year. (Do not round intermediate calculations. Decreases should be indicated by a minus sign.) References Effect on Income from Company Operations Danube…arrow_forwardComputing Impairment of Intangible Assets Stiller Company had the following information for its three intangible assets. 1. Patent: A patent was purchased for $180,000 on June 30, 2018. Stiller estimated the useful life of the patent to be 15 years. On December 31, 2020, the estimated future cash flows attributed to the patent were $153,000. The fair value of the patent was $135,000. 2. Trademark: A trademark was purchased for $9,000 on August 31, 2019. The trademark is considered to have an indefinite life. The fair value of the trademark on December 31, 2020, is $4,500. 3. Goodwill: Stiller recorded goodwill in January 2019, related to a purchase of another company. The carrying value of goodwill is $54,000 on December 31, 2020. On December 31, 2020, the segment for which the goodwill relates had a fair value of $1,044,000. The book value of the net assets of the segment (including goodwill) is $1,080,000. Note: Round each of your answers to the nearest whole dollar. a. Classify each…arrow_forward
- May I ask for help with this question? I got an answer of 100,000 (Rounded Up) Please check. W Co. acquired the intangible assets listed below for a total lump sum price of P400,000.arrow_forwardRecording Transactions and Adjustments for Tangible and Intangible Asset The following transactions and adjusting entries were completed by a paper-packaging company called Gravure Graphics International during 2015 and 2016. The company uses straight-line depreciation for trucks and other vehicles, double-declining-balance depreciation for buildings, and straight-line amortization for patents. Paid $88,000 cash to purchase storage shed components. Paid $4,000 cash to have the storage shed erected. The storage shed has an estimated life of 10 years and a residual value of $7,000 Paid $31,000 cash to purchase a pickup truck for use in the business. The truck has an estimated useful life of five years and a residual value of $5,000. Paid $300 cash for repairs to the pickup truck. Paid $27,000 cash to purchase patent rights on a new paper bag manufacturing process. The patent is estimated to have a remaining usefut life of five years Recorded depreciation and amortization on the pickup…arrow_forwardDetermining Carrying Value and Amortization of Intangible Assets Review the following information pertaining to Denzel Company. A patent was purchased on January 2, 2018, for $149,500 when the remaining legal life was 16 years. On January 2, 2020, Denzel determined that the remaining useful life of the patent was only eight years from the date of its acquisition. On January 1, 2020, Denzel Company purchased a second patent for $184,000 cash. At January 1, 2020, 6 years of the patent's legal life of 20 years had already expired. On June 30, 2020, Denzel Company paid a firm $18,400 for a new trademark. Denzel considers the life of the trademark to be indefinite. On November 1, 2020, Denzel Company acquired all noncash assets and assumed all liabilities of Lee Company at a cash purchase price of $276,000. Denzel determined that the fair value of the identfiable net assets acquired in the transaction is $269,100. Note: When answering the following questions, do not round until your…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Asset impairment explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=lWMDdtHF4ZU;License: Standard Youtube License