Question

     Information concerning Robin Company’s intangible assets is as follows.

1. On January 1, 2015, Robin signed an agreement to operate as a franchise of Cat Copy Service, Inc. for an initial franchise fee of $100,000. Of this amount, $20,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $20,000 each, beginning January 1, 2016. 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, 2015, of the 4 annual payments discounted at 15% (the implicit rate for a loan of this type) is $57,100. The agreement also provides that 6% of the revenue from the franchise must be paid to the franchisor annually. Robin’s revenue from the franchise for 2015 was $1,100,000. Robin estimates the useful life of the franchise to be 15 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.)

2. Robin incurred $71,500 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2014. Legal fees and other costs associated with registration of the patent totaled $21,150. Robin estimates that the useful life of the patent will be 9 years.

3. A trademark was purchased from Hong Kong Company for $29,250 on July 1, 2011. Expenditures for successful litigation in defense of the trademark totaling $7,200 were paid on July 1, 2014. Robin estimates that the useful life of the trademark will be 15 years from the date of acquisition.

     Instructions

1. Create a schedule showing the intangible assets section of Robin’s balance sheet at December 31, 2015. Show supporting computations in good form.

2. Create a schedule showing all expenses resulting from the transactions that would appear on Robin’s income statement for the year ended December 31, 2015. Show supporting computations in good form.

Answer 1

a.

Note : Trademark amount = Purchase price - amortisatized value from(2011 - 2014 i.e 3 years) + Litigation expenses

                                           = $29,250 - { ($29,250 / 15) * 3 } + $7,200

                                            = $30,600

b.

Note :

Franchise fee = 4% 0f $1,100,000