Starn Tool Company has five different intangible assets to be accounted for and reported on the financial statements.

The management is concerned about the amortization of the cost of each of these intangibles.

Facts about each intangible follow:

a. Patent. The company purchased a patent at a cash cost of $55,900 on January 1, 2014. The patent has an estimated useful life of 13 years.

b. Copyright. On January 1, 2014, the company purchased the copyright for $22,500 cash. It is estimated that the copyrighted item will have no value by the end of 10 years.

c. Franchise. The company obtained a franchise from McKenna Company to make and distribute a special item. It obtained the franchise on January 1, 2014, at a cash cost of $14,400 for a 10-year period.

d. License. On January 1, 2013, the company secured a license from the city to operate a special service for a period of five years. Total cash expended to obtain the license was $14,000.

e. Goodwill. The company started business in January 2011 by purchasing another business for a cash lump sum of $400,000. Included in the purchase price was "Goodwill, $40,000". Company executives stated that "the goodwill is an important long-lived asset to us." It has an indefinite life.

1. Compute the amount of amortization that should be recorded for each intangible asset at the end of the annual accounting period, December 31,2014.

2. Give the book value of each intangible asset on December 31, 2015.

3. Assume that on January 2, 2016, the copyrighted item was impaired in its ability to continue to produce strong revenues. The other intangible assets were not affected. Starn estimated that the copyright would be able to produce future cash flows of $17,000. The fair value of the copyright was determined to be $16,000. Compute the amount, if any, of the impairment loss to be recorded.

Answer rating: 100% (QA)

Solution 1 Amortization Amortization is the systematic and rational allocation of ... View the full answer