(a) Information concerning Pina Corporation’s intangible assets is as follows. 1
ID: 2586079 • Letter: #
Question
(a)
Information concerning Pina Corporation’s intangible assets is as follows.1. On January 1, 2017, Pina signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $50,000. Of this amount, $10,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $10,000 each, beginning January 1, 2018. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2017, of the 4 annual payments discounted at 10% (the implicit rate for a loan of this type) is $31,700. The agreement also provides that 4% of the revenue from the franchise must be paid to the franchisor annually. Pina’s revenue from the franchise for 2017 was $800,000. Pina estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.) 2. Pina incurred $60,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2017. Legal fees and other costs associated with registration of the patent totaled $17,600. Pina estimates that the useful life of the patent will be 8 years. 3. A trademark was purchased from Shanghai Company for $30,000 on July 1, 2014. Expenditures for successful litigation in defense of the trademark totaling $8,500 were paid on July 1, 2017. Pina estimates that the useful life of the trademark will be 20 years from the date of acquisition.
Explanation / Answer
Intangible assets
31-Dec-2017
Schedule 1. Franchise
Cost of franchise on 1/1/17(10000+31700)=$41,700
2017 Amortization(41700×1/10)=$4,170
Cost of franchise, net of Amortization=$37,530
Schedule 2. Patent
Cost of securing patent on jan 2, 2017=$17,600
2017 Amortization (17600×1/8)=$2,200
Cost of patent, net of Amortization=$15,400
Schedule 3. Trademark
Cost of trademark on July 1, 2014=$30,000
Amortization for 3 years upto july 1,2017(30,000×3/20) =$4,500
Book value on July 1,2017=$25,500
Cost of legal defence=$8,500
Book value after legal defence=$34,000
Amortization for six months upto Dec 31,2017(34000 × 1/17 × 6/12)=$1,000
Cost of trademark , net of Amortization=$33,000
Franchise, net of accumulated Amortization of $4,170(schedule 1) $37,530 Patent ,net of accumulated Amortization of $2,200(schedule 2) $15,400 Trademark ,net of accumulated Amortization of $5,500(schedule 3) $33,000 Total intangible assets $85,930Related Questions
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