Exercise 12-4 Presented below is selected information for Blossom Company. Answe

Question

Exercise 12-4 Presented below is selected information for Blossom Company. Answer the questions asked about each of the factual situations. 1. Blossom purchased a patent from Vania Co. for $1,320,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Blossom 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? The amount to be reported $ 2. Blossom bought a franchise from Alexander Co. on January 1, 2016, for $305,000. The carrying amount of the franchise on Alexander’s books on January 1, 2016, was $455,000. The franchise agreement had an estimated useful life of 30 years. Because Blossom 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? The amount to be amortized $ 3. On January 1, 2017, Blossom incurred organization costs of $252,500. What amount of organization expense should be reported in 2017? The amount to be reported $ 4. Blossom purchased the license for distribution of a popular consumer product on January 1, 2017, for $162,000. 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, Blossom can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017? The amount to be amortized $

Explanation / Answer

Question Answer 1. Blossom purchased a patent from Vania Co. for $1,320,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Blossom 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? The amount to be reported $ Amortization in 2015 and 2016=(1320000/10)*2=264000 Amortization in 2017=(1320000-264000)/(6-2)=264000 And hence Amount to be reported in Balance Sheet on 31.12.2017=1320000-264000-264000=792000 2. Blossom bought a franchise from Alexander Co. on January 1, 2016, for $305,000. The carrying amount of the franchise on Alexander’s books on January 1, 2016, was $455,000. The franchise agreement had an estimated useful life of 30 years. Because Blossom 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? The amount to be amortized $ Since its highly probable that Franchise will be retained for 10 years (till 2025), should be amortized for 10 year. And hence amortization at the year ended 31 Dec 2017 will be=305000/10=30500 3. On January 1, 2017, Blossom incurred organization costs of $252,500. What amount of organization expense should be reported in 2017? The amount to be reported $ Organization Cost should be expensed as and when incurrend and hence 252500 should be reported as expense in 2017 4. Blossom purchased the license for distribution of a popular consumer product on January 1, 2017, for $162,000. 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, Blossom can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017? The amount to be amortized $ Since Licence can be renewd at nominal cost and for indefinite period of time, amorization not required

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