Recharge Ltd. purchased a patent on January 1, 2020, for $ 1,120,000. At the time of the purchase, the patent had a remaining legal life of 20 years. In January 2023, Recharge spent $ 92,000 successfully defending the patent in court. One of the other results of the court case was the discovery that the patent would only have a remaining useful life of 9 years. Recharge's year end was December 31.

Required

1. Prepare the entries on the books of Recharge to record
   1. The purchase of the patent,
   2. The amortization for the first year (2020),
   3. The defence of the patent, and
   4. Amortization for 2023.

Question 10.2 (Total: 18 marks; -3 marks per error)

B52 Corporation's pre-tax accounting income of $726,000 for the year 2020 included the following items:

Amortization of identifiable intangibles	$140,000
Depreciation of building	119,000
Loss from discontinued operations	46,000
Unusual, non-recurring gains	157,000
Profit-sharing payments to employees	69,300

Lush Industries Ltd. would like to purchase B52 Corporation. In trying to measure B52's normalized earnings for 2020, Lush determines that the building's fair value is triple the book value and that its remaining economic life is double the life that B52 is using. Lush would continue the profit-sharing payments to employees, with the payments being based on income from continuing operations before amortization and depreciation.

Required

Calculate the 2020 normalized earnings amount of B52 Corporation that Lush would use to calculate goodwill.

Question 10.3 (Total: 10 marks)

Identify whether the following costs would be expensed (E) or capitalized (C)

1. Lawyer fees related to the successful defense of a patent
2. Routine website maintenance
3. Costs incurred to register a company's name and trademark
4. Interest or borrowing costs related to an internally generated intangible
5. Lawyer fees related to the unsuccessful defense of a patent.

Question 10.4 (Total: 48 marks; 2 marks per line)

The following transactions involving intangible assets of Sand Corporation occurred on or near December 31, 2020.

1. Sand paid Beach Company $450,000 for the exclusive right to market a particular product, using the Beach name and logo in promotional material. The franchise runs for as long as Sand is in business. Sand decided to amortize the franchise over 25 years.
2. Sand spent $100,000 developing a new manufacturing process and has applied for a patent. It believes that its application will be successful and that the process will be successfully implemented and used for 10 years.
3. In January 2018, Sand 's application for a patent (#2 above) was granted. Legal and registration costs incurred were $25,000. The patent runs for 18 years from the grant date. The manufacturing process will be useful to Sand for 10 years.
4. Sand incurred $80,000 in successfully defending another of its patents in an infringement suit. The patent expires in 4 years.
5. Sand incurred $200,000 in an unsuccessful patent defense. As a result of the adverse verdict, the patent, with a remaining unamortized cost of $99,000, is deemed worthless.
6. Sand paid Mexico Laboratories $52,000 for research work performed by Mexico under contract for Sand.

 

 

Required

1.       Record the journal entry on the date of the transaction

2.       Record the journal entry at December 31, 2021 (if no entry is required, write "none needed").

 

Question 10.5 (Total: 8 marks; -2 marks per error)

Vandelay Industries Ltd. had one patent recorded on its books as at January 1, 2020. This patent had a book value of $365,000 and a remaining useful life of eight years. During 2020, Vandelay incurred research costs of $140,000 and brought a patent infringement suit against a competitor. On December 1, 2020, Vandelay received the good news that its patent was valid and that its competitor could not use the process Vandelay had patented. The company spent $106,000 to defend this patent.

Required

At what amount should the patent be reported on the December 31, 2020 statement of financial position, assuming monthly straight-line amortization of patents?