LO9-6

PROBLEM 9.5A

Accounting for Intangible Assets

During the current year, Reddick Corporation incurred the following expenditures, which must be recorded either as operating expenses or as intangible assets.

Expenditures were made for the training of new employees. The average employee remains with the company for five years, but is trained for a new position every two years.

Reddick purchased a controlling interest in a vinyl flooring company. The expenditure resulted in the recording of a significant amount of goodwill. Reddick expects to earn above-average returns on this investment indefinitely.

Reddick incurred large amounts of research and development costs in developing a dirt-resistant carpet fiber. The company expects that the fiber will be patented and that sales of the resulting products will contribute to revenue for at least 25 years. The legal life of the patent, however, will be only 20 years.

Reddick made an expenditure to acquire the patent on a popular carpet cleaner from a competitor. The patent had a remaining legal life of 14 years, but Reddick expects to produce and sell the product for only 6 more years.

Reddick spent a large amount to sponsor the televising of the Olympic Games. Reddicks intent was to make television viewers more aware of the companys name and its product lines.

Instructions

Explain whether each of these expenditures should be recorded as an operating expense or an intangible asset. If you view the expenditure as an intangible asset, indicate the number of years over which the asset should be amortized, if any. Explain your reasoning.