1.
Prepare the intangible assets section of the
1.
Explanation of Solution
Intangible assets: These are the long-term assets which are not physical in nature, but possess value. The intangible assets would be amortized over their definite useful life or limited useful life, and those with indefinite or unlimited lives are not amortized.
Prepare the intangible assets section of the balance sheet of Company T at December 31, 2016 as follows:
Company T | |
Intangible assets section of balance sheet | |
For the year ended December 31, 2016 | |
Particulars | Amount |
Franchise from Company R, net (Schedule 1) | $61,830 |
Patent, net (Schedule 2) | $14,35 |
Trademark, net (Schedule 3) | $42,706 |
Total intangible assets | $118,886 |
Table (1)
Schedule 1:
Calculate the value of franchise from Company R.
Particulars | Amount |
Cost of franchise at January 1, 2016: | |
Down payment | $25,000 |
Present value of installments | $43,700 |
Initial amount capitalized | $68,700 |
Less: Amortization of franchise for 2016 (1) | $6,870 |
Franchise balance on December 31, 2016 | $61,830 |
Table (2)
Schedule 2:
Calculate the value of patent.
Particulars | Amount |
Capitalized cost of patent at January 2, 2016-Legal fees and other cost associated with registration | $16,400 |
Less: Amortization of patent for 2016 (2) | $2,050 |
Patent balance on December 31, 2016 | $14,350 |
Table (3)
Schedule 3:
Calculate the value of patent.
Particulars | Amount |
Cost of trademark at July1, 2016 | $40,000 |
Less: Amortization expense from July 1, 2013 to December 31, 2015 (3) | $5,000 |
Less: Amortization expense from January 1,2016 to June 30, 2016 (4) | $1,000 |
Add: Cost of successful litigation | $10,000 |
Balance on July 1, 2016 | 44,000 |
Less: Amortization expense from July 1, 2016 to December 31, 2016 (5) | $1,294 |
Trademark balance on December 31, 2016 | $42,706 |
Table (4)
Note: Trademark has a limited useful life; hence it should be amortized over its useful life.
Working note (1):
Calculate the amortization of franchise for 2016.
Working note (2):
Calculate the amortization of patent for 2016.
Working note (3):
Calculate the amortization expense of trademark from July 1, 2013 to December 31, 2016.
Working note (4):
Calculate the amortization expense of trademark from January 1, 2016 to June 30, 2016.
Working note (5):
Calculate the amortization expense of trademark from July 1, 2016 to December 31, 2016.
2.
Prepare a schedule showing all expenses of intangible assets that would appear on the income statement of Company T for the year ended December 31, 2016.
2.
Explanation of Solution
Prepare a schedule showing all expenses of intangible assets that would appear on the income statement of Company T for the year ended December 31, 2016 as follows:
Company T | ||
Expenses resulting from intangibles transactions | ||
For the year ended December 31, 2016 | ||
Particulars | Amount | Amount |
Franchise from Company R: | ||
Amortization of franchise for 2016 (Schedule 1) | $6,870 | |
Add: Franchise fees on revenues from operations (6) | $45,000 | |
Add: Imputed interest expense on unpaid balance of initial franchise fees (7) | $6,118 | $57,988 |
Patent: | ||
Amortization of patent for 2016 (Schedule 2) | $2,050 | |
Trademark: | ||
Amortization of trademark for 2016 (Schedule 3) (8) |
$2,294 | |
Total intangible assets | $62,332 |
Table (5)
Working note (6):
Calculate the franchise fees on revenues from operations.
Working note (7):
Calculate the imputed interest expense.
Working note (8):
Calculate the amortization expense of trademark for 2016.
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