Question

E12-4 (L01,2,5) (Intangible Amortization) The following is selected information for Alatorre Company.
1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Alatorre 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 bal-ance sheet for the patent, net of accumulated amortization, at December 31, 2017?
2. Alatorre bought a franchise from Alexander Co. on January 1, 2016, for $400,000. The carrying amount of the franchise on Alexander’s books on January 1, 2016, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre 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?
3. On January 1, 2017, Alatorre incurred organization costs of $275,000. What amount of organization expense should be reported in 2017?
4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2017, for $150,000. 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, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?
Instructions Answer the questions asked about each of the factual situations.

Answer 1

ANSWER:-

Amortization per year (when useful life estimated is 10 years) =Cost /useful life

= 1,000,000 / 10

    = $ 100,000 per year

Amortization for 2years (2015 +2016 ) =100,000 *2 =$200,000

Amortization for 2017 = (Cost - Accumulated amortization)/Remaining useful life

= (1,000,000 - 200,000)/ (6-2 )

=   800,000 / 4

= $ 200,000 per year

   Amount to be reported = Cost -accumulated depreciaiton

= 1000,000 - [100,000+100,000+200,000]

= $1,000,000 - 400,000

=$ 600,000

2.

Franchise should be amortized over estimated useful life.As it is uncertain, useful life is estimated at 10 years.

The amount of amortization on the franchise for the year ended December 31, 2017 should be: ($400,000/10) = $40,000

3.

Recurring expenditure should be reported in the year in which it is incurred. Organization expense is recurring expenditure. Hence, an amount of $275,000 should be reported 2017 as expense.

4.

If any asset has indefinite useful life, such asset should not be amortized but can be impaired. Hence, here license should not be amortized but can be impaired.

if you have any query just ask me how..?.i am here to helps you. dont give you direct thums down.if you satishfied to my work please give me vote for THUMS UP. THANK YOU VERY MUCH