Question

Problem 9-10A a-c (Part Level Submission) The intangible assets and goodwill reported by Blossom Corporation at December 31, 2017, follow: Copyrights Less: Accumulated amortization $37,500 18,750 Trademarks $ 18,750 57,280 135,630 $211,660 Goodwill Total A copyright (#1) was acquired on January 1, 2016, and has a useful life of four years. The trademarks were acquired on January 1, 2014, and are expected to have an indefinite life. The company has a December 31 year end and prepares adjusting journal entries annually. The following cash transactions may have affected intangible assets and goodwill during 2018: Jan. July 5 1 Sept. Oct. Dec. 1 1 31 Paid $6,510 in legal costs to successfully defend the trademarks against infringement by another company. Developed a new product, incurring $202,020 in research and $46,000 in development costs with probable future benefits. The product is expected to have a useful life of 20 years. Paid $58,300 to a popular hockey player to appear in commercials advertising the company's products. The commercials will air in early September. Acquired another copyright (#2) for $175,280. The new copyright has a useful life of four years. Determined the recoverable amount of the goodwill to be $96,830. There was no indication that the copyrights or trademarks were impaired.

Answer 1

1. Legal Cost of $6,510

legal cost is to be charged to P&L. Journal Entry would be Legal Expenses dr. to Bank ------- $ 6510. at year end legal expenses to be transferred to P&L account.

2. New Product Development

Research cost has not to be capitalized. only development cost has to be capitalised

Research Cost dr. $202,020

Product Development Cost dr. $46,000

To Bank a/c $ 248020

3. Advertisement cost

Payment to hockey player is revenue expenditure. Journal entry would be Advertisement Expense dr. to Bank ----- $58,300

4. Copyright accquired

Copyright(#2) a/c dr. to Bank -------- $175280

5. Impairment of Goodwill

Impairment Loss a/c dr. to Goodwill a/c ---------$ 38,800

Impairment Loss = $135,630 - $96830 = 38,800. Impairment loss to be charged to P&L.

6. answer to b.

amortization of copyright (#1) = 37500 / 4 = $ 9375

Journal Entry would be : Amortisation expense a/c dr. to Copyright (#1) a/c = $ 9,375.

amortization of copyrighy (#2) = (175280 / 4)*(3 / 12) = $10,955

Journal entry would be : Amortization expense a/c dr. to Copyright (#2) a/c ------- $ 10,955

Amortization to development expense = 46,000 / 20 = $ 2,300

Journal entry would be : Amortization expense a/c dr to Product development cost a/c ------- $ 2300