1. How much is overstatement(understatement) of the retained earnings by the end of 2019? (if UNDER, put a negative sign before the numerical figure) * Black Widow Corporation engaged you for the first time to audit their financial statements as of and forthe period ended December 31, 2020. They presented the following balances of their intangibles as ofDecember 31, 2020:Patent A1,317,5002,200,000Patent BPatent C2,000,000Trademark1,000,000Franchise4,050,000Relevant information related to the intangibles are as follows:• The entity incurred P800,000 research and development costs in 2019 related to the Patent A.Black Widow incurred 9750,000 for the application of the patent, and it was approved on July 2,2019. The entity estimated that the useful life of the patent is 10 years. The entity capitalized allcosts incurred related to the patent, including the research and development costs, and amortizedthe patent accordingly.Patent B was purchased last January 2, 2020 for P2,500,000. Based from the previous owner'sestimate, the remaining useful life of the patent upon purchase was 2 years, however, BlackWidow expects to benefit from the patent for 5 years from the date of acquisition. On December30, 2020, the entity successfully defended the patent from an infringement lawsuit. The companypaid P200,000 legal expenses, which was capitalized by the entity. The entity amortized thepatent accordingly.• Black Widow applied for another patent (Patent C) on June 30, 2020. The entity incurredP2,000,000 for the registration of the patent, and expects to benefit from the patent for the wholeduration of its legal life. However, the entity was not able to provide an amortization for thispatent.• The trademark was purchased last November 2, 2020 for P1,000,000. The useful life of the saidtrademark is deemed to be indefinite. By the end of 2020, the recoverable amount of thetrademark is P1,050,000.• A franchise agreement was entered into by your client on January 2, 2020. The initial franchisefee is P5,000,000, and the franchise is good for 5. Black Widow is required to pay 5% of its annualrevenue from the franchise. The entity generated P1,000,000 during 2020, and capitalized theadditional payment made in 2020.

Retained Earnings The purpose of keeping retained earning is to reserve the amount of profit which…

Answered: 1. How much is…

1. How much is overstatement(understatement) of the retained earnings by the end of 2019? (if UNDER, put a negative sign before the numerical figure) *

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter12: Intangibles

Section: Chapter Questions

Problem 8P

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