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A patent was purchased from Lou Company for $1,215,000 on January 1, 2018. Valen estimated the remaining useful life of the patent to be 15 years. The patent was carried in Lou's accounting records at a net book value of $955,000 when Lou sold it to Valen. During 2019, a franchise was purchased from Rink Company for $430,000. In addition, 4% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $2,100,000. Valen estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase. Valen incurred R&D costs in 2019 as follows: Materials and equipment $108,000 Personnel 133,000 Indirect costs 78,000   $319,000

A patent was purchased from Lou Company for $1,215,000 on January 1, 2018. Valen estimated the remaining useful life of the patent to be 15 years. The patent was carried in Lou's accounting records at a net book value of $955,000 when Lou sold it to Valen. During 2019, a franchise was purchased from Rink Company for $430,000. In addition, 4% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $2,100,000. Valen estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase. Valen incurred R&D costs in 2019 as follows: Materials and equipment $108,000 Personnel 133,000 Indirect costs 78,000   $319,000

Intermediate Accounting: Reporting And Analysis
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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Intangibles: Balance Sheet Presentation and Income Statement Effects

Valen Company has provided information on intangible assets as follows:

  1. A patent was purchased from Lou Company for $1,215,000 on January 1, 2018. Valen estimated the remaining useful life of the patent to be 15 years. The patent was carried in Lou's accounting records at a net book value of $955,000 when Lou sold it to Valen.
  2. During 2019, a franchise was purchased from Rink Company for $430,000. In addition, 4% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $2,100,000. Valen estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase.
  3. Valen incurred R&D costs in 2019 as follows:

    Materials and equipment $108,000
    Personnel 133,000
    Indirect costs 78,000
      $319,000

    Valen estimates that these costs will be recouped by December 31, 2020.
  4. On January 1, 2019, Valen estimates, based on new events, that the remaining life of the patent purchased on January 1, 2018, is only 10 years from January 1, 2019.

Required:

1. Prepare a schedule showing the intangibles section of Valen's balance sheet at December 31, 2019.

Valen Company Intangible Assets Section of Balance Sheet December 31, 2019 Patent, net (Schedule 1) Franchise from Rink Company, net (Schedule 2) Intangible assets Schedule 1: Computation of Patent from Lou Company Cost of patent at date of purchase Amortization of patent for 2018 Amortization of patent for 2019 Patent balance Schedule 2: Computation of Franchise from Rink Company Cost of franchise at date of purchase Amortization of franchise for 2019 Franchise balance 2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts. Valen Company Income Statement Effects For the Year Ended December 31, 2019 Patent from Lou Company:
Transcribed Image Text:Valen Company Intangible Assets Section of Balance Sheet December 31, 2019 Patent, net (Schedule 1) Franchise from Rink Company, net (Schedule 2) Intangible assets Schedule 1: Computation of Patent from Lou Company Cost of patent at date of purchase Amortization of patent for 2018 Amortization of patent for 2019 Patent balance Schedule 2: Computation of Franchise from Rink Company Cost of franchise at date of purchase Amortization of franchise for 2019 Franchise balance 2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts. Valen Company Income Statement Effects For the Year Ended December 31, 2019 Patent from Lou Company:
Cost of patent at date of purchase Amortization of patent for 2018 Amortization of patent for 2019 Patent balance Schedule 2: Computation of Franchise from Rink Company Cost of franchise at date of purchase Amortization of franchise for 2019 Franchise balance 2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts. Valen Company Income Statement Effects For the Year Ended December 31, 2019 Patent from Lou Company: Franchise from Rink Company: Total expenses
Transcribed Image Text:Cost of patent at date of purchase Amortization of patent for 2018 Amortization of patent for 2019 Patent balance Schedule 2: Computation of Franchise from Rink Company Cost of franchise at date of purchase Amortization of franchise for 2019 Franchise balance 2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts. Valen Company Income Statement Effects For the Year Ended December 31, 2019 Patent from Lou Company: Franchise from Rink Company: Total expenses
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