Question

Wildhorse Company has provided information on intangible assets as follows.

● Wildhorse incurred research and development costs in 2017 as follows.

Materials and equipment		$150,000
Personnel		281,000
Indirect costs		21,000
		$452,000

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

● A patent was purchased from Sandhill Company for $810,000 on January 1, 2016. Wildhorse estimated the remaining useful life of the patent to be 10 years. The patent was carried in Sandhill’s accounting records at a net book value of $1,790,000 when Sandhill sold it to Wildhorse.

● During 2017, a franchise was purchased from Clinton Company for $371,000. In addition, 5% of revenue from the franchise must be paid to Clinton. Revenue from the franchise for 2017 was $1,240,000. Wildhorse estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase.

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

Prepare a schedule showing the intangibles section of Wildhorse’s balance sheet at December 31, 2017. (Enter account name only and do not provide descriptive information.)

WILDHORSE COMPANY Intangibles Section of Balance Sheet choose the accounting period                                                                      For the Year Ended December 31, 2017For the Month Ended December 31, 2017December 31, 2017
select an opening section name                                                                      Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity
enter an account title					$enter a dollar amount
enter an account title					enter a dollar amount
select a closing section name                                                                      Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity					$enter a total amount for this section

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List of Accounts

  

  

Prepare a schedule showing the income statement effect (related to expenses) for the year ended December 31, 2017, as a result of the facts above. (Enter account name only and do not provide descriptive information.)

WILDHORSE COMPANY Income Statement Effect choose the accounting period                                                                      For the Month Ended December 31, 2017December 31, 2017For the Year Ended December 31, 2017
select an opening name for section one                                                                      Research and Development CostsAmortization of Franchise for 2017Amortization of Patent for 2017Total Charged against IncomePatent from Sandhill CompanyFranchise from Clinton CompanyPayment to Clinton Company:
select an account title                                                                      Amortization of Patent for 2017Patent from Sandhill CompanyAmortization of Franchise for 2017Franchise from Clinton CompanyTotal Charged against IncomeResearch and Development CostsPayment to Clinton Company				$enter a dollar amount
select an opening name for section two                                                                      Amortization of Franchise for 2017Research and Development CostsPayment to Clinton CompanyAmortization of Patent for 2017Franchise from Clinton CompanyTotal Charged against IncomePatent from Sandhill Company:
select an account title                                                                      Total Charged against IncomeFranchise from Clinton CompanyResearch and Development CostsAmortization of Patent for 2017Patent from Sandhill CompanyPayment to Clinton CompanyAmortization of Franchise for 2017		$enter a dollar amount
select an account title                                                                      Payment to Clinton CompanyPatent from Sandhill CompanyTotal Charged against IncomeFranchise from Clinton CompanyAmortization of Franchise for 2017Research and Development CostsAmortization of Patent for 2017		enter a dollar amount
				enter a subtotal of the two previous amounts
select an account title                                                                      Total Charged against IncomeAmortization of Franchise for 2017Franchise from Clinton CompanyPatent from Sandhill CompanyResearch and Development CostsPayment to Clinton CompanyAmortization of Patent for 2017				enter a dollar amount
select a closing name for this statement                                                                      Franchise from Clinton CompanyPayment to Clinton CompanyPatent from Sandhill CompanyTotal Charged against IncomeResearch and Development CostsAmortization of Franchise for 2017Amortization of Patent for 2017				$enter a total amount for this statement

Answer 1

(a)

WILDHORSE COMPANY
Intangibles Section of Balance Sheet
December 31, 2017
Patent from Ford Company, net of accumulated
amortization of $226800 (Schedule 1) $583200
Franchise from Polo Company, net of accumulated
amortization of $37100 (Schedule 2) 333900
Total intangibles $917100

Schedule 1 Computation of Patent from Ford Company
Cost of patent at date of purchase $810000
Amortization of patent for 2016 ($810,000 ÷ 10 years) (81000)
729000
Amortization of patent for 2017 ($729,000 ÷ 5 years) (145800)
Patent balance $583200

Schedule 2 Computation of Franchise from Polo Company
Cost of franchise at date of purchase $ 371000
Amortization of franchise for 2020 ($371000 ÷ 10) (37100)
Franchise balance $ 333900

(b)

WILDHORSE COMPANY
   Income Statement Effect
For the year ended December 31, 2017
Patent from Ford Company:
Amortization of patent for 2017
($729000 ÷ 5 years)       $145800
Franchise from Polo Company:
Amortization of franchise for 2020
($371000 ÷ 10) $ 37100
Payment to Polo Company
($1240,000 X 5%) 62000 99100
Research and development costs        452,000
Total charged against income        $ 696900