Question

In: Accounting

1. On January 1, 2020, Riverbed signed an agreement to operate as a franchisee of Copy...

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
$
    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.

Solutions

Expert Solution

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

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