Exercise 12-4 Presented below is selected information for Sandhill Company. Answ
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Question
Exercise 12-4 Presented below is selected information for Sandhill Company. Answer the questions asked about each of the factual situations 1. Sandhill purchased a patent from Vania Co. for $1,190,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Sandhill 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 accumyulated amortization, at December 31, 2017? The amount to be reported 2. Sandhill bought a franchise from Alexander Co. on January 1, 2016, for $345,000. The carrying amount of the franchise on Alexander's books on January 1, 2016, was $495,000. The franchise agreement had an estimated useful life of 30 years. Because Sandhill 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, Sandhill incurred organization costs of $272,500. What amount of organization expense should be reported in 20177 The amount to be reported 4. Sandhill purchased the license for distribution of a popular consumer product on January 1, 2017, for $149,000. 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, Sandhill 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 Click if you would like to Show Work for this question: Open Show Work sz I .2000-2017 ohnwie.asons-nc. All Rights Reserved. A Division of 2ohnwlerssonato Version 4.24Explanation / Answer
Amortization for 2015 and 2016=$1,190,000×2/10
=$238,000
Carrying value of patent in the beginning of 2017=$1,190,000-$238,000
=$952,000
Remaining life=6years -2 years
=4 years
2017 Amortization=$952,000/4
=$238,000
Accumulated Amortization=$238,000+$238,000
=$476,000
So company should report the patent at Dec. 2017, net of accumulated Amortization =$1,190,000-$476,000
=$714,000
2.
Company should amortize the franchise over its estimated useful life of 10 years. The amount of Amortization for the year ended Dec 31, 2017:
=$345,000/10
=$34,500
3.
Organization expenses should be expensed as incurred. Therefore $272,500 of organization expense should be reported in 2017 .
4.
Because license can be easily renewed (at nominal cost). It has an indefinite life. Thus , no Amortization will be recorded.
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