1. Chapter 10-1 PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS Accounting Principles, Eighth Edition CHAPTER 10

2. Chapter 10-2 Intangible assets are rights, privileges, and competitive advantages that do not possess physical substance. Section 3 – Intangible Assets Patents Copyrights Franchises or licenses Trademarks or trade names Goodwill Intangible assets are categorized as having either a limited life or an indefinite life. Common types of intangibles: LO 8 Explain the basic issues related to accounting for intangible assets.

3. Chapter 10-3 Purchased Intangibles: Recorded at cost. Includes all costs necessary to make the intangible asset ready for its intended use. Valuation Internally Created Intangibles: Generally expensed. Only capitalize direct costs incurred in perfecting title to the intangible, such as legal costs. Accounting for Intangible Assets LO 8 Explain the basic issues related to accounting for intangible assets.

4. Chapter 10-4 Amortization of Intangibles Limited-Life Intangibles: Amortize to expense. Credit asset account or accumulated amortization. Indefinite-Life Intangibles: No foreseeable limit on time the asset is expected to provide cash flows. No amortization. Accounting for Intangible Assets LO 8 Explain the basic issues related to accounting for intangible assets.

5. Chapter 10-5 Patents Exclusive right to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant. Capitalize costs of purchasing a patent and amortize over its 20-year life or its useful life, whichever is shorter. Expense any R&D costs in developing a patent. Legal fees incurred successfully defending a patent are capitalized to Patent account. Accounting for Intangible Assets LO 8 Explain the basic issues related to accounting for intangible assets.

6. Chapter 10-6 BE10-11 BE10-11 Galena Company purchases a patent for $120,000 on January 2, 2008. Its estimated useful life is 10 years. (a) Prepare the journal entry to record patent expense for the first year. (b) Show how this patent is reported on the balance sheet at the end of the first year. Amortization expense12,000(a) Patent12,000 (b) Balance Sheet Presentation Intangible assets: Patent108,000 Accounting for Intangible Assets

7. Chapter 10-7 Copyrights Give the owner the exclusive right to reproduce and sell an artistic or published work.  plays, literary works, musical works, pictures, photographs, and video and audiovisual material. Copyright is granted for the life of the creator plus 70 years. Capitalize acquisition costs. Amortized to expense over useful life. Accounting for Intangible Assets LO 8 Explain the basic issues related to accounting for intangible assets.

8. Chapter 10-8 Trademarks and Trade Names Word, phrase, or symbol that identifies a particular enterprise or product.  Kleenex, Windows, Coca-Cola, and Jeep. Trademark or trade name has legal protection for indefinite number of 10 year renewal periods. Capitalize acquisition costs. No amortization. Accounting for Intangible Assets LO 8 Explain the basic issues related to accounting for intangible assets.

9. Chapter 10-9 Franchises and Licenses Contractual arrangement between a franchisor and a franchisee.  Shell, Taco Bell, or Rent-A-Wreck are franchises. Franchise (or license) with a limited life should be amortized to expense over the life of the franchise. Franchise with an indefinite life should be carried at cost and not amortized. Accounting for Intangible Assets LO 8 Explain the basic issues related to accounting for intangible assets.

10. Chapter 10-10 Goodwill Includes exceptional management, desirable location, good customer relations, skilled employees, high-quality products, etc. Only recorded when an entire business is purchased. Goodwill is recorded as the excess of... over purchase price over the FMV of the identifiable net assets acquired. Internally created goodwill should not be capitalized. Accounting for Intangible Assets LO 8 Explain the basic issues related to accounting for intangible assets.

11. Chapter 10-11 Research and Development Costs Frequently results in something that a company patents or copyrights such as: new product, process, idea, formula, composition, or literary work. All R & D costs are expensed when incurred. LO 8 Explain the basic issues related to accounting for intangible assets.

12. Chapter 10-12 Presentation Companies usually include natural resources under “Property, plant, and equipment” and show intangibles separately. Statement Presentation and Analysis LO 9 Indicate how plant assets, natural resources, and intangible assets are reported. Illustration 10-24

13. Chapter 10-13 Analysis Each dollar invested in assets produced $0.96 in sales. If a company is using its assets efficiently, each dollar of assets will create a high amount of sales. Statement Presentation and Analysis LO 9 Indicate how plant assets, natural resources, and intangible assets are reported. Illustration 10-25

14. Chapter 10-14 Ordinarily, companies record a gain or loss on the exchange of plant assets. The rationale for recognizing a gain or loss is that most exchanges have commercial substance. An exchange has commercial substance if the future cash flows change as a result of the exchange. Exchange of Plant Assets LO 10 Explain how to account for the exchange of plant assets.

15. Chapter 10-15 Exchange of Plant Assets – Loss Treatment Assume Roland Company exchanged a set of used trucks plus cash for a new semi-truck. The used trucks have a combined book value of $42,000 (cost of $64,000 and accumulated depreciation of $22,000). The used trucks have a fair market value of $26,000. Roland must pay $17,000 for the semi- truck. Compute the loss on the exchange. Book value of used trucks$42,000 Fair market value of used trucks 26,000 Loss on exchange$16,000 LO 10 Explain how to account for the exchange of plant assets.

16. Chapter 10-16 Exchange of Plant Assets – Loss Treatment Assume Roland Company exchanged a set of used trucks plus cash for a new semi-truck. The used trucks have a combined book value of $42,000 (cost of $64,000 and accumulated depreciation of $22,000). The used trucks have a fair market value of $26,000. Roland must pay $17,000 for the semi- truck. Prepare the journal entry to record the exchange. LO 10 Explain how to account for the exchange of plant assets. Semi truck 43,000 Accumulated depreciation 22,000 Loss on disposal 16,000 Used trucks64,000 Cash 17,000

17. Chapter 10-17 Exchange of Plant Assets – Gain Treatment Assume Mark Express Delivery decides to exchange its old delivery equipment plus cash of $3,000 for new delivery equipment. The book value of the old delivery equipment is $12,000 (cost $40,000 less accumulated depreciation of $28,000), and the fair market value of the old equipment is $19,000. Compute the gain on the exchange. Fair market value of old equipment$19,000 Book value of old equipment 12,000 Gain on exchange$ 7,000 LO 10 Explain how to account for the exchange of plant assets.

18. Chapter 10-18 Exchange of Plant Assets – Gain Treatment LO 10 Explain how to account for the exchange of plant assets. Delivery equipment 22,000 Accumulated depreciation 28,000 Delivery equipment 40,000 Gain on disposal 7,000 Cash 3,000 Assume Mark Express Delivery decides to exchange its old delivery equipment plus cash of $3,000 for new delivery equipment. The book value of the old delivery equipment is $12,000 (cost $40,000 less accumulated depreciation of $28,000), and the fair market value of the old equipment is $19,000. Prepare the journal entry to record the exchange.