In: Accounting
1. | On January 1, 2020, Riverbed signed an agreement to operate as a franchisee of Copy Service Inc., for an initial franchise fee of $75,000. Of this amount, $35,000 was paid when the agreement was signed and the balance is payable in four annual payments of $10,000 each, beginning January 1, 2022. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2020, of the four annual payments discounted at 7% (the implicit rate for a loan of this type) is $33,872. The agreement also provides that 5% of the franchisee’s revenue must be paid to the franchisor each year. The franchisor requires that Riverbed provide it with some form of assurance verifying the revenue amount used to determine the 5% payment. Riverbed’s revenue from the franchise for 2020 was $760,000. Riverbed estimates that the franchise’s useful life will be 10 years. | |
2. | Riverbed incurred $45,000 in experimental costs in its laboratory to develop a patent, and the patent was granted on January 2, 2020. Legal fees and other costs of patent registration totalled $13,600. Riverbed estimates that the useful life of the patent will be 6 years. | |
3. | A trademark was purchased from Shanghai Company for $28,700 on July 1, 2017. The legal costs to successfully defend the trademark totalled $8,160 and were paid on July 1, 2020. Riverbed estimates that the trademark’s useful life will be 14 years from the acquisition date. |
Assume that Riverbed reports using ASPE. Prepare a schedule showing the intangible assets section of Riverbed’s statement of financial position at December 31, 2020. (Round answers to 0 decimal places, e.g. 5,275. Enter account name only and do not provide descriptive information.)
Riverbed Corporation Intangible Assets December 31, 2020 |
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$ | ||
Total Intangible Assets | $ |
Compute the total amount of expenses resulting from the transactions that would appear on Riverbed’s income statement for the year ended December 31, 2020.
Answer(1)
RIVERBED CORPORATION | |
Intangible Assets | |
December, 31,2020 | |
Franchise | $ 61,985 |
Patent | $ 11,333 |
Trademark | $ 29,314 |
Total Intangible Assets | $ 102,632 |
Working Note:
Working Note-1 | Franchise |
Cost of franchise on 1/1/20 ($35,000 + $33,872) | $ 68,872 |
2020 amortization ($68,872 X 1/10) | $ 6,887 |
Cost of franchise, Net of Amortization | $ 61,985 |
Working Note-2 | Patent |
Cost of Patent on 1/2/20 | $ 13,600 |
2020 Amortization ($13,600 X 1/6) | $ 2,267 |
Cost of patent, Net of Amortization | $ 11,333 |
Working Note-3 | Trademark |
Cost of trademark on 7/1/17 | $ 28,700 |
Amortization, 7/1/17 to 7/1/20 ($28,700 X 3/14) | $ 6,150 |
Book value on 7/1/20 | $ 22,550 |
Cost of successful legal defense on 7/1/20 | $ 8,160 |
Book value after legal defense | $ 30,710 |
Amortization, 7/1/20 to 12/31/20 ($30,710 X 1/11 X 6/12) | $1,396 |
Cost of Trademark, Net of Amortization | $29,314 |
Answer (2)
Riverbed Corporation | |
Schedule of Expenses | |
For the Year Ended December 31, 2020 | |
Interest expense ($33,872 X 7%) | $ 2,371 |
Franchise amortization (Working Note-1) | $ 6,887 |
Franchise fee ($760,000 X 5%) | $ 38,000 |
Patent amortization (Working Note-2) | $ 2,267 |
Amortization of Trademark 1/1/20 to 6/30/20 ($28,700 X 1/14 X 6/12) | $ 1,025 |
Amortization of Trademark 7/1/20 to 12/31/20 ($30,710 X 1/11 X 6/12)] | $ 1,396 |
Total Expenses | $ 51,946 |