Information concerning Marigold Corporation’s intangible assets is as follows.
1. On January 1, 2017, Marigold signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $80,000. Of this amount, $16,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $16,000 each, beginning January 1, 2018. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2017, of the 4 annual payments discounted at 10% (the implicit rate for a loan of this type) is $50,720. The agreement also provides that 8% of the revenue from the franchise must be paid to the franchisor annually. Marigold’s revenue from the franchise for 2017 was $800,000. Marigold estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.)
2. Marigold incurred $80,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2017. Legal fees and other costs associated with registration of the patent totaled $23,200. Marigold estimates that the useful life of the patent will be 8 years.
3. A trademark was purchased from Shanghai Company for $46,000 on July 1, 2014. Expenditures for successful litigation in defense of the trademark totaling $-1,700 were paid on July 1, 2017. Marigold estimates that the useful life of the trademark will be 20 years from the date of acquisition.
Prepare a schedule showing the intangible assets section of Marigold’s balance sheet at December 31, 2017. (Round all answers to 0 decimal places, e.g. 8,564.)
The amount of franchise fees to be capitalised is
Initial fees on signing - $16,000
Add :Present Value of 4 installments- $50,720
So, the Franchise fee capitalised= 66,720
Annual amortisation of franchise fees= $66,720/10= $6,672
Annual franchise fees payment for 2017 is treated as expense for the year and not capitalised. The amount of $800,000*8%= $6,4000 is subtracted from gross sales to arrive at net sales
So, in the Balance Sheet franchise would be presented as follows
|Franchise fees cost||66,720|
|Less. amortisation for 2017||6,672|
|Carrying value on 31 Dec 2017||60,048|
The R&D cost of internally develpoed patents must be treated as an expense. Only the legal fees and other registration cost need to be capitalised. So, the patent capitalised amount would be $23,200. The useful life is 8 years
So, the patent would be presented as follows
|Less. amortisation for 2017||2,900|
|Carrying value on December 31, 2017||20,300|
3. Trademark schedule can be prepared as follows
|less. amortisation till 2016( 2 years and 6 months)||5,750|
|Value of trademark on 1/1/17||40,250|
|Add litigation expenses (1/7/17)||1,700|
|Less Amortisation for 2017(2300+50)||2350|
|Carrying value on Dec 31,2017||39,600|
Amortisation cost from 1/7/14-31/12/16 has been computed as follows
amortisation for 1 year= 46,000/20=$2300
Depreciation for 2.5 years= $5,750
After the litigation expenses were incurred, the useful life of the trademark remarks at 17 years, so per year amortisation=$1700/17=$100
So, the amortisation for 2017 =2300+50=$2,350...
Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*See Solution
Q: Hagen Company’s budgeted sales and direct materials purchase are as follows. Budgeted Sales ...
A: We can anser this question by creating the following schedule of expected payments :
Q: Problem 25-3A Computation of cash flows and net present values with alternative depreciation methods...
A: The Taxable Income needs to be calculated by subtracting the depreciation from Pretax income. Once ...
Q: Wildhorse Co. purchased equipment on January 1 at a list price of $155000, with credit terms 3/10, n...
A: Compute the total cost of new equipment:
Q: Winkle, Kotter, and Zale is a small law firm that contains 10 partners and 12 support persons. The f...
A: 1-aCalculate predetermined overhead rate for Research and Documents Department:
Q: for each of the 5 transation, state whether the transaction represented revenue to the firm during ...
A: Revenue transactions mean the transactions which are incidental to the operational activities of the...
Q: Hello, Silverstone's production budget for July called for making 39,800 units of a single product. ...
A: Absorption costing: The absorption costing method is a costing method that allocates the direct prod...
Q: Basket purchase allocation Dorsey Co. has expanded its operations by purchasing a parcel of land wit...
A: a. Calculate the cost that should be recorded for the land.
Q: Noah Yobs, who has $75,400 of AGI (solely from wages) before considering rental activities, has $67,...
A: We have solved part (a) as part (b) where it is asked to complete Form 1040 (page1) all the personal...
Q: Vat tax - the popularity of this type of tax, the nature of this type of tax and the effect on gover...
A: Value Added Tax (VAT): It is a consumption tax placed on manufactured goods, at whatever time value...