Trotman Company had three intangible assets at the end of 2016 (end of the accounting year):

Trotman Company had three intangible assets at the end of 2016 (end of the accounting year):
 

a. Computer software and Web development technology purchased on January 1, 2015, for $80,000. The technology is expected to have a four-year useful life to the company.

b. A patent purchased from Ian Zimmer on January 1, 2016, for a cash cost of $27,000. Zimmer had registered the patent with the U.S. Patent Office five years ago.

c. A trademark purchased for $28,000 on November 1, 2016. Management decided the trademark has an indefinite life.

Required:

1. Compute the acquisition cost of each intangible asset.

2. Compute the amortization of each intangible at December 31, 2016. The company does not use contra-accounts. (Assume the company uses straight-line method.)
 

3. Show how these assets and any related expenses should be reported on the balance sheet and income statement for 2016.

 
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Explanation:

2.
 

Amortization on December 31, 2016 (straight-line method with no residual value):

Technology: $80,000 × 1/4 = $20,000 amortization expense

Patent: $27,000 × 1/15* remaining = $1,800 amortization expense

*Patents have a 20 year legal life and the patent was registered five years ago.

Trademark: The trademark is not amortized due to its indefinite life.

3.
 

Income statement for 2016:

Amortization expense ($20,000 + $1,800) = $21,800

Balance sheet at December 31, 2016:

Technology ($80,000 − $40,000*) = $40,000

Patent ($27,000 − $1,800) = $25,200

Trademark = $28,000**

* $20,000 amortization expense × 2 years

** Although trademarks are valuable assets, they are rarely seen on balance sheets unless purchased.