Financial Accounting Vol. II Test Questions
Chapter 39: Specific Intangible Assets
(Patent, Trademark and Goodwill)
1.Violet Company was granted a patent on January 1, 2012, and appropriately capitalized P750,000 of related costs. Violet was amortizing the patent over its estimated life of 15 years. During 2015, Violet paid P200,000 in legal costs in successfully defending an attempted infringement of the patent. After the legal action was completed, Violet sold the patent to the plaintiff for P1,000,000. Violet’s income statement, what amount should Violet report as gain from sale of patent?
Answer:
Acquisition cost, Jan. 1, 2012
750,000
Amortization for 2012, 2013 and 2014 (150,000)
Book value, Jan. 1, 2015
600,000
Sales price
1,000,000
Less:Remaining cost of patent 600,000
Gain from sale of patent
400,000
2.Rocco Company developed a trademark to distinguish its products from those of its competitors. Through advertising and other means, the company is seeking to establish significant product identification to increase future sales. The similarity between the trademark costs and other intangible and operating costs has caused some confusion over proper accounting. The following items are being treated as part of the cost of the trademark:
Marketing research to study
500,000
consumer tastes
Design costs of trademark
2,500,000
Legal fees of registering trademark 300,000
Advertising to establish recognition 150,000
of trademark
Registration fee w/ Patent Office 80,000
Answer:
Design costs
2,500,000
Legal fees of registering trademark 300,000
Registration fee w/ Patent Office 80,000
Total cost of trademark 2,880,000
Chapter 40: Specific Intangible Assets
(Copyright, franchise, leasehold, license, & customer list)
3.On July 1, 2014, Harris Company signed an agreement to operate as a franchisee of Amber Printers for an initial franchise fee of P15,000,000. The same date, Harris paid