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In: Accounting

Intangibles: Balance Sheet Presentation and Income Statement Effects Clinton Company has provided information on intangible assets...

Intangibles: Balance Sheet Presentation and Income Statement Effects Clinton Company has provided information on intangible assets as follows: A patent was purchased from Lou Company for $1,140,000 on January 1, 2018. Clinton estimated the remaining useful life of the patent to be 15 years. The patent was carried in Lou's accounting records at a net book value of $900,000 when Lou sold it to Clinton. During 2019, a franchise was purchased from Rink Company for $460,000. In addition, 6% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $1,700,000. Clinton estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase. Clinton incurred R&D costs in 2019 as follows: Materials and equipment $133,000 Personnel 144,000 Indirect costs 53,000 $330,000 Clinton estimates that these costs will be recouped by December 31, 2020. On January 1, 2019, Clinton estimates, based on new events, that the remaining life of the patent purchased on January 1, 2018, is only 10 years from January 1, 2019.

Required: 1. Prepare a schedule showing the intangibles section of Clinton's balance sheet at December 31, 2019.

2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts.

Solutions

Expert Solution

Answer:

Patent:

Purchase cost $1140000
Useful life 15 years
Amortization expense per year $76000
Book value on Jan 1 2019 ($1140000-$76000) $1064000
Remaining useful life 10 years
Amortization expense for 2019 ($1064000/10) $106400

Franchise:

Franchising cost $460000
Useful life 10 years
Amortization cost $46000
Revenue from franchise $1700000
Additional expense 6% $102000
Intangible assets sections:
Details Amount
Patent net (schedule 1) $957600
Franchise net (schedule 2) $414000
Intangible assets: $1371600
Schedule 1:
Cost of patent purchase $1140000
Less: Amortization of 2018 ($76000)
Less: Amortization of 2019 ($106400)
Patent balance: $957600
Schedule 2:
Cost of franchise purchase $460000
Amortization of franchise 2019 ($46000)
Balance: $414000
Income Statement
Patent Information $106400
Franchise amortization $46000
Franchise expense 6% $102000 $148000
Total expense $254400
Add: R&D expense $330000
Total expense $584400

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