Textbook Problem

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.