Munn, Inc., had the following intangible account balances at December 31, 2006:
Patent ………………………… $192,000
Accumulated amortization ……. (24,000)
Transactions during 2007 and other information relating to Munn’s intangible assets were as follows:
1. The patent was purchased from Grey Company for $192,000 on January 1, 2005, at which date the remaining legal life was 16 years. On January 1, 2007, Munn determined that the useful life of the patent was only eight years from the date of acquisition.
2. On January 2, 2007, in connection with the purchase of a trademark from Cody Corporation, the parties entered into a noncompetition agreement and a consulting contract. Munn paid Cody $800,000, of which three-quarters was for the trademark and one-quarter was for Cody’s agreement not to compete for a five-year period in the line of business covered by the trademark. Munn considers the life of the trademark to be indefinite. Under the consulting contract, Munn agreed to pay Cody $50,000 annually on January 2 for five years. The first payment was made on January 2, 2007. The trademark is not impaired at the end of 2007.
1. Prepare a schedule of the expenses for 2007 relating to Munn’s intangible asset balances at December 31, 2006 and transactions during 2007.
2. Prepare the intangible assets section of Munn’s balance sheet at December 31, 2007.