Trotman Company had three intangible assets at the end of the current year: Computer software and website development technology purchased on January 1 of the prior year for $73,000. The technology is expected to have a four-year useful life to the company with no residual value. A patent purchased from Ian Zimmer on January 1 of the current year for a cash cost of $12,000. Zimmer had registered the patent with the U.S. Patent and Trademark Office five years ago. Trotman intends to use the patent for its remaining life. A trademark purchased for $21,000 on November 1 of the current year. Management decided the trademark has an indefinite life. Required: 1. Compute the amortization of each intangible at December 31 of the current year. The company does not use contra-accounts. 2a. Show how the expenses related to the three intangible assets should be reported on the income statement for the current year. 2b. Show how the three intangible assets should be reported on the balance sheet for the current year.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Trotman Company had three intangible assets at the end of the current year:
- Computer software and website development technology purchased on January 1 of the prior year for $73,000. The technology is expected to have a four-year useful life to the company with no residual value.
- A patent purchased from Ian Zimmer on January 1 of the current year for a cash cost of $12,000. Zimmer had registered the patent with the U.S. Patent and Trademark Office five years ago. Trotman intends to use the patent for its remaining life.
- A trademark purchased for $21,000 on November 1 of the current year. Management decided the trademark has an indefinite life.
Required:
1. Compute the amortization of each intangible at December 31 of the current year. The company does not use contra-accounts.
2a. Show how the expenses related to the three intangible assets should be reported on the income statement for the current year.
2b. Show how the three intangible assets should be reported on the balance sheet for the current year.
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