Question

Blossom Company has provided information on intangible assets as follows.

A patent was purchased from Ford Company for $2,300,000 on January 1, 2016. Blossom estimated the remaining useful life of the patent to be 10 years. The patent was carried in Ford’s accounting records at a net book value of $1,800,000 when Ford sold it to Blossom.

During 2017, a franchise was purchased from Polo Company for $500,000. In addition, 4% of revenue from the franchise must be paid to Polo. Revenue from the franchise for 2017 was $2,300,000. Blossom estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase.

Blossom incurred research and development costs in 2017 as follows.

Materials and equipment		$138,000
Personnel		184,000
Indirect costs		100,000
		$422,000

Blossom estimates that these costs will be recouped by December 31, 2020. The materials and equipment purchased have no alternative uses.

On January 1, 2017, because of recent events in the field, Blossom estimates that the remaining life of the patent purchased on January 1, 2016, is only 5 years from January 1, 2017.

1) Prepare the intangibles section of Blossom’s balance sheet at December 31, 2017.

2) Prepare the income statement effect (related to expenses) for the year ended December 31, 2017, as a result of the facts above.

Answer 1