At the beginning of 2007, Bryan’s Bakery Company purchased a secret cookie recipe for $25,000. In addition, Bryan developed a new cake recipe at a cost of $5,000. Bryan expects to use both recipes indefinitely; however, the useful (economic) life of similar recipes has been 10 years. Assuming straight-line amortization, what amount of recipe expense should Bryan report for the year ended 2007 and what amount should Bryan report as a tangible asset on its balance sheet at the end of 2007? Recipe expense Balance sheet A) $7,500 $22,500 B) $7,500 $0 C) $3,000 $30,000 Your answer: A was incorrect. The correct answer was B) $7,500 $0 The recipes are intangible assets. The purchased cookie recipe is capitalized and amortized over 10 years at $2,500 per year ($25,000 cost / 10 years). Since the cake recipe was developed internally, it is expensed immediately. Thus, total expense for 2007 is $7,500 ($2,500 amortization expense + $5,000 cake recipe expense). where does $22,500 appear if not on balance sheet?
This is a dirty question. The $22,500 is on the balance sheet, but it’s there as an intangible asset. The question asks for tangible assets.
got it, the question said tangible asset on balance sheet Thanks
i did the same question tonight and listed A as correct answer: Your answer: A was correct! The recipes are intangible assets. The purchased cookie recipe is capitalized and amortized over 10 years at $2,500 per year ($25,000 cost / 10 years). Since the cake recipe was developed internally, it is expensed immediately. Thus, total expense for 20X7 is $7,500 ($2,500 amortization expense + $5,000 cake recipe expense). The balance sheet value of the purchased recipe at the end of 20X7 is $25,000 – $2,500 = $22,500. the acquired asset has to be accounted for
omg…dats trcky question…
@jagrandits The question says ‘tangible assets’, which means b/c will have tangible assets - 0 intangible assets - 22,500 question was tricky in wordings. From explaination , i feel your questions wordings might be slightly different. Can you please post your question too?
good call, bk At the beginning of 20X7, Bryan’s Bakery Company purchased a secret cookie recipe for $25,000. In addition, Bryan developed a new cake recipe at a cost of $5,000. Bryan expects to use both recipes indefinitely; however, the useful (economic) life of similar recipes has been 10 years. Assuming straight-line amortization, what amount of recipe expense should Bryan report for the year ended 20X7 and what amount should Bryan report as assets related to these recipes on its balance sheet at the end of 20X7?
jgrandits Wrote: ------------------------------------------------------- > what amount should Bryan report as assets > related to these recipes on its balance sheet at > the end of 20X7? bk Wrote: ------------------------------------------------------- > what amount should Bryan report as a > tangible asset on its balance sheet at the end of > 2007? very tricky