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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Barb Company has provided information on intangible assets as follows:
1. A patent was purchased from Lou Company for $1,500,000 on January 1, 2018. Barb estimated the remaining useful life of the patent to be 10 years. The patent was carried in Lou’s accounting records at a net book value of $1,250,000 when Lou sold it to Barb.
2. During 2019, a franchise was purchased from Rink Company for $500,000. In addition, 5% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $2,000,000. Barb estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase.
3. Barb incurred R&D costs in 2019 as follows.
Barb estimates that these costs will be recouped by December 31, 2020.
4. On January 1, 2019, Barb estimates, based on new events, that the remaining life of the patent purchased on January 1, 2018, is only 5 years from January 1, 2019.
Required:
1. Prepare the intangibles assets section of Barb’s balance sheet at December 31, 2019. Show supporting computations.
2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts. Show supporting computations.
1.
Prepare the intangible assets section of the balance sheet of Company B as of December 31, 2019.
Intangible assets: These are the long-term assets which are not physical in nature, but possess value. The intangible assets would be amortized over their definite useful life or limited useful life, and those with indefinite or unlimited lives are not amortized.
Prepare the intangible assets section on the balance sheet of Company B at December 31, 2019 as follows:
| Company B | |
| Intangible assets section of balance sheet | |
| For the year ended December 31, 2019 | |
| Particulars | Amount |
| Patent, net (Schedule 1) | $1,080,000 |
| Franchise from Company R, net (Schedule 2) | $450,000 |
| Total intangible assets | $1,530,000 |
Table (1)
Schedule 1:
Calculate the patent from Company L.
| Particulars | Amount |
| Cost of patent at date of purchase | $1,500,000 |
| Less: Amortization of patent for 2018 (1) | $150,000 |
| Â | $1,350,000 |
| Less: Amortization of patent for 2019 (2) | $270,000 |
| Patent from Company L | $1,080,000 |
Table (2)
Schedule 2:
Calculate the franchise from Company R.
| Particulars | Amount |
| Cost of franchise at date of purchase | $500,000 |
| Less: Amortization of patent for 2019 (3) | $50,000 |
| Â Â Â Â Â Franchise from Company R | $450,000 |
Table (3)
Working note (1):
Calculate the amortization of patent for 2018...
2.
Prepare the income statement effects of Company B for the year ended December 31, 2019.
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