Am I mental or just overtired here? 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 $0 B) $7,500 $22,500 C) $3,000 $27,500 D) $3,000 $30,000 Your answer: B was incorrect. The correct answer was A) $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).
Am I also metal or just overtired? getting the same answer as newsuper !!!
The answer is A. First i chosed B, but after i reread the question, i found that it asks only the amount of tangible asset on the balance sheet, not the intangible asset. I hope it is correct.
Yeah - the key is that the recipe is an intangible asset, not tangible (it is intellectual property). Thus, since the question asks “what amount should Bryan report as a TANGIBLE asset on its balance sheet at the end of 2007” it is 0. Obviously since the first part is R&D, under GAAP it should be expensed. There are different rules for IFRS. I think that if it’s in the development stage you can capitalize it, but I’m not sure - Anyone know off hand?
Yeah, I see know. The purchased cookie recipe is an intangible and the questions asks for only tangible assets. Bit sneaky really.