Exercise 12-4 Presented below is selected information for Cullumber Company. Ans

Question

Exercise 12-4

Presented below is selected information for Cullumber Company.

Answer the questions asked about each of the factual situations.

1. Cullumber purchased a patent from Vania Co. for $1,230,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Cullumber determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2017?

2. Cullumber bought a franchise from Alexander Co. on January 1, 2016, for $365,000. The carrying amount of the franchise on Alexander’s books on January 1, 2016, was $515,000. The franchise agreement had an estimated useful life of 30 years. Because Cullumber must enter a competitive bidding at the end of 2018, it is unlikely that the franchise will be retained beyond 2025. What amount should be amortized for the year ended December 31, 2017?

3. On January 1, 2017, Cullumber incurred organization costs of $282,500. What amount of organization expense should be reported in 2017?

4. Cullumber purchased the license for distribution of a popular consumer product on January 1, 2017, for $153,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Cullumber can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?

Explanation / Answer

Dear student, only one question is allowed at a time. I am answering the first question

Initial amortization

= (Cost – Salvage value) / Expected useful life of the patent

= ($1,230,000 – 0) / 10

= $123,000 each year

So, Amortization for 2015 = Amortization of 2016 = $123,000

Revised amortization

= (Cost – Salvage value) / Expected useful life of the patent

= (($1,230,000 – 0) / 6

= $205,000 each year

So, should be accumulated amortization for 3 years

= Revised amortization x Number of years

= $205,000 x 3

= $615,000

So, amount which should be reported as on December 31, 2017

= Cost – Accumulated amortization

= $1,230,000 - $615,000

= $615,000

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.