Problem 8-38 Intangible Assets During 2012, Haslem, Inc., invested $105,000 to s
ID: 2521604 • 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?
The input in the box below will not be graded, but may be reviewed and considered by your instructor.
b. Compute amortization expense for the patent for years 2013 and 2014.
Prepare the appropriate journal entries.
2013 Dec. 31
2014 Dec. 31
c. Haslem will do which of the following on January 1, 2015 based on Haslem's major competitor developing a similar product (which one of the following statements is true):
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. What amount should be recorded as the cost of the patent?
Cost of patent = 105,000 + 22,000 + 1200
= $128,200
b. Compute amortization expense for the patent for years 2013 and 2014.
Amortization expense = Initial cost of patent / Patent useful life
= 128,200 / 10
= 12820
Journal entries
2013 Dec 31 Amortisation expenses 12820 Patent 12820 2014 Dec 31 Amortisation expenses 12820 Patent 12820