Suddenly Salad had the following expenditures related to developing its trademark.General advertising costs$300,000Advertising specifically focused on trademark development120,000Legal fees to register trademark52,000Registration and design fees for the trademark38,000Legal fees for successful defense of the new trademark 33,000Total$543,000During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all the above as costs of the trademark. Management contends that all of the costs increase the value of the trademark; therefore, all the costs should be capitalized.1. Which of the above costs should the company capitalize to the Trademark account in the balance sheet?2. Which of the above costs should the company report as expense in
the income statement?
What will be an ideal response?
| 1. Trademark account in the balance sheet: | ? |
| Legal fees to register trademark | $52,000 |
| Registration and design fees for the trademark | 38,000 |
| Legal fees for successful defense of the new trademark | 33,000 |
| Total costs capitalized | $123,000 |
| 2. Expense in the income statement: | ? |
| General advertising costs | $300,000 |
| Advertising specifically focused on trademark development | 120,000 |
| Total costs expensed | $420,000 |
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