Pharoah Corp., reporting under ASPE, has provided the following information regarding its intangible assets: 1. A patent was purchased from Marvin Inc. for $1.1 million on January 1, 2019. Pharoah estimated the patent’s remaining useful life to be 10 years. The patent was carried in Marvin’s accounting records at a carrying amount of $1,400,000 when Marvin sold it to Pharoah. On January 1, 2020, because of recent events in the field, Pharoah estimates that the remaining life of this patent is only five years from January 1, 2020. 2. During 2020, a franchise was purchased from Burr Ltd. for $304,000. As part of the deal, Burr must also be paid 6% of revenue from the franchise operations. Revenue from the franchise for 2020 was $1.2 million. Pharoah estimates the franchise’s useful life to be 10 years and takes a full year’s amortization in the year of purchase. 3. Pharoah incurred the following research costs in 2020: Materials and equipment $81,200 Personnel 113,000 Indirect costs 52,200 $246,400 FIRST QUESTION: Prepare a schedule showing the intangibles section of Pharoah’s statement of financial position at December 31, 2020 (see the attached picture for the structure). SECOND QUESTION: Compute the net income statement effect for the year ended December 31, 2020 as a result of the facts above.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Pharoah Corp., reporting under ASPE, has provided the following information regarding its intangible assets:

A patent was purchased from Marvin Inc. for $1.1 million on January 1, 2019. Pharoah estimated the patent’s remaining useful life to be 10 years. The patent was carried in Marvin’s accounting records at a carrying amount of $1,400,000 when Marvin sold it to Pharoah. On January 1, 2020, because of recent events in the field, Pharoah estimates that the remaining life of this patent is only five years from January 1, 2020.

During 2020, a franchise was purchased from Burr Ltd. for $304,000. As part of the deal, Burr must also be paid 6% of revenue from the franchise operations. Revenue from the franchise for 2020 was $1.2 million. Pharoah estimates the franchise’s useful life to be 10 years and takes a full year’s amortization in the year of purchase.

Pharoah incurred the following research costs in 2020:

Materials and equipment		$81,200
Personnel		113,000
Indirect costs		52,200
		$246,400

FIRST QUESTION: Prepare a schedule showing the intangibles section of Pharoah’s statement of financial position at December 31, 2020 (see the attached picture for the structure).

SECOND QUESTION: Compute the net income statement effect for the year ended December 31, 2020 as a result of the facts above.

Pharoah Corp.
INTANGIBLES SECTION OF
STATEMENT OF FINANCIAL POSITION
$
Total intangibles
$4
%24

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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