Problem 8-38 Intangible Assets During 2012, Haslem, Inc., invested $105,000 to s
ID: 2499488 • Letter: P
Question
Problem 8-38
Intangible Assets
During 2012, Haslem, Inc., invested $105,000 to successfully develop a new product, and a patent was granted on December 31, 2012. Haslem incurred $22,000 of legal fees and $1,200 of registration fees to secure the patent. Haslem estimates that the patent will have a useful life of 10 years and no salvage value. On January 1, 2015, Haslem's major competitor announced that it had developed a similar product, which reduced the value of Haslem's patent to $12,000. Haslem considers the loss in value permanent. Haslem has a December 31 year-end.
Required:
a. What amount should be recorded as the cost of the patent?
$
How are the remaining costs treated for financial reporting purposes?
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b. Compute amortization expense for the patent for years 2013 and 2014.
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Prepare the appropriate journal entries.
2013 Dec. 31
2014 Dec. 31
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b.2 Debit Amortization Expense and credit the intangible asset Patent for the amount calculated in (b) (1).
c. Haslem will do which of the following on January 1, 2015 based on Haslem's major competitor developing a similar product:
Halsem must recognize the impairment in the footnotes vs. reducing the value on the balance sheet.
Halsem can choose to continue recognizing the patent at its current book value and amortizing it every year.
Halsem can choose to reduce the value of the patent to $12,000 which is the market value of the patent after impairment.
Halsem must reduce the value of the patent to $12,000 which is the market value of the patent after impairment.
Year Amortization expense 2013 $ 2014 $Explanation / Answer
a) Cost of Patent = $105,000 + $22,000 + $1,200 = $128,200
b)
1 ) Amortization expense = Carrying value of Asset / No. of years remaining
2013 = $128,200 / 10 = $12,820
2014 = ( $ 128,200- $ 12,820) / (10-1) = $ 115,380 / 9 =$12,820
2) Journal
31 dec 2013
Amortization Expense Dr $12,820
Patents Cr $12,820
31 dec 2014
Amortization Expense Dr $12,820
Patents Cr $12,820
c) Haslem Must reduce the value of the patent to $12,000 which is the market value of the patent after impairment.