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Case 3: DREXLER CORPORATION Information concerning Drexler Corporation's intangible assets is as follows: 1. On January 1, 20x4, Drexler signed an agreement to operate as a franchisee of Houston Copy Service, Inc., for an initial franchise fee of P255,00o. Of this amount, P75,000 was paid when the agreement was signed, and the balance is payable in four (4) annual payments of P45,000 each beginning January 1, 20x5. The agreement provides that the down payment is not refundable, and no future services are required of the franchisor. The implicit rate for a loan of this type is 14%. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Drexler's revenue from the franchise for 20x4 was P2,700,000. Drexler estimates the useful life of the franchise to be 10 years. 2. Drexler incurred P234,000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 20x4. Legal fees and other costs associated with registration of the patent totaled P49,200. Management estimates that the useful life of the patent will be eight (8) years. 3. A trademark was purchased from Jordan Company for P120,000 on July 1, 20x1. Expenditures for successful litigation in defense of the trademark totaling P30,000 were paid on July 1, 20x4.

Case 3: DREXLER CORPORATION Information concerning Drexler Corporation's intangible assets is as follows: 1. On January 1, 20x4, Drexler signed an agreement to operate as a franchisee of Houston Copy Service, Inc., for an initial franchise fee of P255,00o. Of this amount, P75,000 was paid when the agreement was signed, and the balance is payable in four (4) annual payments of P45,000 each beginning January 1, 20x5. The agreement provides that the down payment is not refundable, and no future services are required of the franchisor. The implicit rate for a loan of this type is 14%. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Drexler's revenue from the franchise for 20x4 was P2,700,000. Drexler estimates the useful life of the franchise to be 10 years. 2. Drexler incurred P234,000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 20x4. Legal fees and other costs associated with registration of the patent totaled P49,200. Management estimates that the useful life of the patent will be eight (8) years. 3. A trademark was purchased from Jordan Company for P120,000 on July 1, 20x1. Expenditures for successful litigation in defense of the trademark totaling P30,000 were paid on July 1, 20x4.

Financial & Managerial Accounting
Financial & Managerial Accounting
13th Edition
ISBN:9781285866307
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter13MJ: Mornin' Joe
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Case 3: DREXLER CORPORATION Information concerning Drexler Corporation's intangible assets is as follows: 1. On January 1, 20x4, Drexler signed an agreement to operate as a franchisee of Houston Copy Service, Inc., for an initial franchise fee of P255,000. Of this amount, P75,000 was paid when the agreement was signed, and the balance is payable in four (4) annual payments of P45,000 each beginning January 1, 20x5. The agreement provides that the down payment is not refundable, and no future services are required of the franchisor. The implicit rate for a loan of this type is 14%. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Drexler's revenue from the franchise for 20x4 was P2,700,000. Drexler estimates the useful life of the franchise to be 10 years. 2. Drexler incurred P234,000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 20x4. Legal fees and other costs associated with registration of the patent totaled P49,200. Management estimates that the useful life of the patent will be eight (8) years. 3. A trademark was purchased from Jordan Company for P120,000 on July 1, 20x1. Expenditures for successful litigation in defense of the trademark totaling P30,000 were paid on July 1, 20x4. Management estimates that the useful life of the trademark will be 20 years from the date of acquisition. Questions: 6. What is the carrying amount of the franchise on December 31, 20x4? 7. What is the carrying amount of the patent on December 31, 20x4? 8. What is the carrying amount of the trademark on December 31, 20x4? 9. What is the total amortization expense? 10. What is the total amount of intangibles-related expenses (excluding amortization) that should be reported in the income statement for the year ended December 31, 20x4? AUDIT OF CURRENT LIABILITIES
Transcribed Image Text:Case 3: DREXLER CORPORATION Information concerning Drexler Corporation's intangible assets is as follows: 1. On January 1, 20x4, Drexler signed an agreement to operate as a franchisee of Houston Copy Service, Inc., for an initial franchise fee of P255,000. Of this amount, P75,000 was paid when the agreement was signed, and the balance is payable in four (4) annual payments of P45,000 each beginning January 1, 20x5. The agreement provides that the down payment is not refundable, and no future services are required of the franchisor. The implicit rate for a loan of this type is 14%. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Drexler's revenue from the franchise for 20x4 was P2,700,000. Drexler estimates the useful life of the franchise to be 10 years. 2. Drexler incurred P234,000 of experimental and development costs in its laboratory to develop a patent which was granted on January 2, 20x4. Legal fees and other costs associated with registration of the patent totaled P49,200. Management estimates that the useful life of the patent will be eight (8) years. 3. A trademark was purchased from Jordan Company for P120,000 on July 1, 20x1. Expenditures for successful litigation in defense of the trademark totaling P30,000 were paid on July 1, 20x4. Management estimates that the useful life of the trademark will be 20 years from the date of acquisition. Questions: 6. What is the carrying amount of the franchise on December 31, 20x4? 7. What is the carrying amount of the patent on December 31, 20x4? 8. What is the carrying amount of the trademark on December 31, 20x4? 9. What is the total amortization expense? 10. What is the total amount of intangibles-related expenses (excluding amortization) that should be reported in the income statement for the year ended December 31, 20x4? AUDIT OF CURRENT LIABILITIES
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