The intangible assets section of Ghani Corporation's balance sheet at December 31, 2013, is as follows:
Copyright #1 .................................................. $36,000
Less: Accumulated amortization 24,000 .................. $12,000
Trademark ..................................................... 52,000
Goodwill ...................................................... 150,000
Total ........................................................... $214,000
The copyright was acquired in January 2012 and has an estimated useful life of three years. The trademark was acquired in January 2010 and is expected to have an indefinite useful life. The following cash transactions may have affected intangible assets during 2014:
Jan. 2 Paid $7,000 in legal costs to successfully defend the trademark against infringement by another company.
July 1 Developed a new product, incurring $275,000 in research costs and $50,000 in development costs.
A patent was granted for the product on July 1, and its useful life is equal to its legal life.
Aug. 1 Paid $45,000 to a popular hockey player to appear in commercials advertising the company's products. The commercials will air in September and October.
Oct. 1 Acquired a second copyright for $168,000. The new copyright has an estimated useful life of six years.
Dec. 31 The company determined the recoverable amount of the trademark and goodwill to be $50,000 and $170,000, respectively. There was no indication that any of the patents or copyrights were impaired.
Instructions
(a) Prepare journal entries to record the transactions.
(b) Prepare any adjusting journal entries required at December 31, 2014, the company's year end.
(c) Show how the intangible assets and goodwill will be presented on the balance sheet at December 31, 2014.
TAKING IT FURTHER
Since intangible assets do not have physical substance, why are they considered to be assets?