P12-3 (Accounting for Franchise, Patents, and Trademark) Information concerning
ID: 2823319 • Letter: P
Question
P12-3 (Accounting for Franchise, Patents, and Trademark) Information concerning Sandro Corpora- tion's intangible assets is as follows On January 1, 2014, Sandro signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $75,000. Of this amount, $15,000 was paid when the agreement was signed and the balance is payable in 4 annual payments of $15,000 each, ment provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2014, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Sandro's revenue from the franchise for 2014 was $900,000. Sandro 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.) 1. beginning January 1, 2015. The agree- 2. Sandro incurred $65,000 of experimental and development costs in its laboratory to develop a pat- ent that was granted on January 2, 2014. Legal fees and other costs associated with registration of the patent totaled $17,600. Sandro estimates that the useful life of the patent will be 8 years 3. A trademark was purchased from Shanghai Company for $36,000 on July 1, 2011. Expenditures for successful litigation in defense of the trademark totaling $10,200 were paid on July 1, 2014. Sandro estimates that the useful life of the trademark will be 20 vears from the date of acquisition Instructions (a) Prepare a schedule showing the intangible assets section of Sandro's balance sheet at December 31 2014. Show supporting computations in good form (b) Prepare a schedule showing all expenses resulting from the transactions that would appear on Sandro's income statement for the year ended December 31, 2014. Show supporting computations in good form.Explanation / Answer
Sandro Corporation Franchise Patent Trademark(3 Years Amortization from( 1/7/2014 to 1/7/2017) Date 01-01-2014 02-01-2014 01-07-2011 Cost(A) $ 58,700.00 $ 17,600.00 $ 36,000.00 Useful life(B) 10 8 20 Amortization(C )=(A)/(B) $ 5,870.00 $ 2,200.00 $36000*3/20=$5400 Book Value $ 52,830.00 $ 15,400.00 $ 30,600.00 Cost of Successful legal defence $ 10,200.00 Book Value after legal defence $ 40,800.00 Amortization from 1/7/2014 to 31/12/2014 for 6 months 40800*1/17*6/12=$1200 Book Value after amortization $ 39,600.00 Sandro Corporation Intangible Assets December 31st 2014 Franchise,net of Amortization $ 52,830.00 Patent,net of Amortization $ 15,400.00 Trademark, net of Amortization $ 39,600.00 Total $ 1,07,830.00
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.