Jimmy Carter Company has provided information on intangible assets as follows. A

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Jimmy Carter Company has provided information on intangible assets as follows. A patent was purchased from Gerald Ford Company for $2,481,000 on January 1, 2013. Carter estimated the remaining useful life of the patent to be 10 years. The patent was carried in Ford’s accounting records at a net book value of $1,895,100 when Ford sold it to Carter. During 2014, a franchise was purchased from Ronald Reagan Company for $579,500. In addition, 6% of revenue from the franchise must be paid to Reagan. Revenue from the franchise for 2014 was $2,674,000. Carter estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase. Carter incurred research and development costs in 2014 as follows. Materials and equipment $143,500 Personnel 193,000 Indirect costs 100,300 $436,800 Carter estimates that these costs will be recouped by December 31, 2017. The materials and equipment purchased have no alternative uses. On January 1, 2014, because of recent events in the field, Carter estimates that the remaining life of the patent purchased on January 1, 2013, is only 5 years from January 1, 2014. Prepare the intangibles section of Carter’s balance sheet at December 31, 2014. JIMMY CARTER COMPANY Intangibles Section of Balance Sheet December 31, 2014 $ $ Prepare the income statement effect (related to expenses) for the year ended December 31, 2014, as a result of the facts above. JIMMY CARTER COMPANY Income Statement Effect For the Year Ended December 31, 2014 : $ : $ $

Explanation / Answer

(a)                                    Jimmy Carter Company

INTANGIBLES SECTION OF BALANCE SHEET

December 31, 2014

Patent from Ford Company, net of accumulated
   amortization of $694,680 (Schedule 1)

$1,786,320

Franchise from Reagan Company, net of accumulated
   amortization of $57,950 (Schedule 2)

  
     432,000

Total intangibles

$1,872,000

Schedule 1Computation of Patent from Ford Company

Cost of patent at date of purchase

$2,481,000

Amortization of patent for 2013 ($2,481,000 ÷ 10 years)

    (248,100)

2,232,900

Amortization of patent for 2014($2,232,900 ÷ 5 years)

    (446,580)

Patent balance

$1,786,320

Schedule 2Computation of Franchise from Reagan Company

Cost of franchise at date of purchase

$   579,500

Amortization of franchise for 2014 ($579,500 ÷ 10)

      (57,950)

Franchise balance

$   521,550

(b)                                  Jimmy Carter Company

Income Statement Effect

For the year ended December 31, 2014

Patent from Ford Company:

         Amortization of patent for 2014

            $2,232,900 ÷ 5 years))

$446,580

Franchise from Reagan Company:

         Amortization of franchise for 2014

            ($579,500 ÷ 10)

$57,950

         Payment to Reagan Company

            ($2,674,000 X 6%)

160,440

218,390

Research and development costs

436,800

         Total charged against income

1,101,770

(a)                                    Jimmy Carter Company

INTANGIBLES SECTION OF BALANCE SHEET

December 31, 2014

Patent from Ford Company, net of accumulated
   amortization of $694,680 (Schedule 1)

$1,786,320

Franchise from Reagan Company, net of accumulated
   amortization of $57,950 (Schedule 2)

  
     432,000

Total intangibles

$1,872,000

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