Question

Presented below is selected information for Oriole Company. Answer the questions asked about each of the factual situations. (Do not leave any answer field blank. Enter 0 for amounts.) (a) On January 1, 2017, Oriole incurred organization costs of $277,000. What amount of organization expense should be reported in 2017? Amount to be reported $

(b) Oriole bought a franchise from Ivanhoe Co. on January 1, 2016, for $195,000. The carrying amount of the franchise on Ivanhoe’s books on January 1, 2016, was $249,000. The franchise agreement had an estimated useful life of 10 years. Because Oriole must enter a competitive bidding at the end of 2018, it is unlikely that the franchise will be retained beyond 2025. What amount should be amortized for the year ended December 31, 2017? Amount to be amortized $

(c) Oriole purchased a patent from Epp Co. for $510,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Oriole determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2017? Amount to be reported $

(d) Oriole purchased the license for distribution of a popular consumer product on January 1, 2017, for $76,800. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Oriole can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017? Amount to be amortized $

Answer 1

Answer:-

(a) On 1st January 2017, Organisation Cost is $2,77,000

so, Amount of Organisation Expense is $2,77,000 reported in 2017.

(b)  Oriole bought a franchise from Ivanhoe Co. on January 1, 2016, for $195,000.

Estimated useful life is 10 years

So, amount should be amortized for the year ended December 31, 2017 = $1,95,000 / 10 yrs

= $19,500

(c) amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2017 is as follows:-

The Amount reported = $5,10,000 * 6 yrs / 10yrs

= $ 3,06,000

Computation of Accumulated Amortisation are as follows:-

Amortization for 2015 and 2016 = $5,10,000 * 2yrs / 10 yrs

= $1,02,000..................(a)  

Amortization for 2017 = ($5,10,000 - $1,02,000) / (6 yrs - 2 yrs)

= $1,02,000...................(b)

Accumulated Amortization 31 st Dec.2017:- Total = (a) + (b)

= $1,02,000 + $1,02,000

= $2,04,000

So Oriole should report the patent at $ 3,06,000 [ Net of $ 2,04,000 accumulated amortization ] on the balance sheet at 31st dec 2017.

(d) There is no Amortisation will be reported for the year ended 31st dec 2017 Because the license can be easily renewed at nominal cost and it has an indefinite life.