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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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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.

Chapter 12, Problem 14E, Barb Company has provided information on intangible assets as follows: 1. A patent was purchased

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.

To determine

Prepare the intangible assets section of the balance sheet of Company B as of December 31, 2019.

Explanation

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
ParticularsAmount
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.

ParticularsAmount
Cost of patent at date of purchase$1,500,000
Less: Amortization of patent for 2018 (1)$150,000
 $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.

ParticularsAmount
Cost of franchise at date of purchase$500,000
Less: Amortization of patent for 2019 (3)$50,000
     Franchise from Company R$450,000

Table (3)

Working note (1):

Calculate the amortization of patent for 2018...

2.

To determine

Prepare the income statement effects of Company B for the year ended December 31, 2019.

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