Question

Comprehensive

Information concerning Kinson Corporation's intangible assets is as follows:

On January 1, 2016, Kinson signed an agreement to operate as a franchisee of Rapid Copy Service Inc. for an initial franchise fee of $96,000. Of this amount, $24,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $18,000 each beginning January 1, 2017. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 2, 2016, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $52,400. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Kinson's revenue from the franchise for 2016 was $920,000. Kinson estimates the useful life of the franchise to be 10 years.

Kinson incurred $68,000 of experimental and development costs in its laboratory to develop a patent, which was granted on January 2, 2016. Legal fees and other costs associated with registration of the patent totaled $15,120. Kinson estimates that the useful life of the patent will be 10 years.

A trademark was purchased from Walton Company for $30,000 on July 1, 2013. Expenditures for successful litigation in defense of the trademark totaling $8,500 were paid on July 1, 2016. Kinson estimates that the useful life of the trademark will be 25 years from the date of acquisition.

Required:

1. Prepare a schedule showing the intangible assets section of Kinson's balance sheet at December 31, 2016. Round final answers to the nearest dollar.

Kinson Corporation
Intangible Assets Section of Balance Sheet
December 31, 2016
Franchise from Rapid Copy Service, Inc., net (Schedule 1)	$
Patent, net (Schedule 2)
Trademark, net (Schedule 3)
Total intangible assets	$

Schedule 1: Show supporting computations for the franchise.

Computation of Franchise from Rapid Copy Service, Inc.
Schedule 1
Cost of franchise at January 1, 2016	$
Amortization of franchise for 2016
Franchise balance, December 31, 2016	$

Schedule 2: Show supporting computations for the patent.

Computation of Patent
Schedule 2
Capitalized cost of patent at January 2, 2016	$
Amortization of patent for 2016
Patent balance, December 31, 2016	$

Schedule 3: Show supporting computations for the trademark. Round computations and final answers to the nearest dollar.

Computation of Trademark
Schedule 3
Cost of trademark at July 1, 2013	$
Amortization through December 31, 2015
Amortization for period January 1 - June 30, 2016
Cost of successful litigation in defense of trademark, July 1, 2016
Balance, July 1, 2016	$
Amortization for period July 1 - December 31, 2016
Balance, December 31, 2016	$

2. Prepare a schedule showing all expenses resulting from the transactions that would appear on Kinson's income statement for the year ended December 31, 2016. Enter all amounts as positive numbers.

Kinson Corporation
Expenses Resulting from Intangible Assets Transactions
For the Year Ended December 31, 2016
Franchise from Rapid Copy Service, Inc.
Amortization of franchise (Schedule 1)	$
Franchise fee on revenues from operations
Imputed interest expense on unpaid balance of initial franchise fee
Amortization of patent (Schedule 2)
Amortization of trademark (from Schedule 3)
Total expenses	$

Answer 1

1.

Kinson Corporation Intangible Assets Section of Balance Sheet December 31,2016
Franchise from Rapid Copy Service, Inc., net (Schedule 1)	$68,760
Patent, net (Schedule 2)	$13,608
Trademark, net (Schedule 3)	$34,110
Total intangible assets	$116,478

Schedule 1: Computations for the franchise

Schedule 1
Cost of franchise at January 1, 2016 ($24,000 + $52,400)	$76,400
Amortization of franchise for 2016 ($76,400 * 1/10)	(7,640)
Franchise balance, December 31, 2016	$68,760

Schedule 2: Computations for the patent.

Schedule 2
Capitalized cost of patent at January 2, 2016	$15,120
Amortization of patent for 2016 ($15,120 * 1/10)	(1,512)
Patent balance, December 31, 2016	$13,608

Schedule 3: Computations for the trademark.

Schedule 3
Cost of trademark at July 1, 2013	$30,000
Amortization through December 31,2015 ($30,000 * 3/25)	(3,600)
Amortization for period January 1 - June 30, 2016	$26,400
Cost of successful litigation in defense of trademark, July 1, 2016	$8,500
Balance, July 1,2016	$34,900
Amortization for period July 1 - December 31, 2016 ($34,900 * 1/22 * 6/12)	(790)
Balance, December 31, 2016	$34,110

2. Schedule showing all expenses resulting from the transactions that would appear on Kinson's income statement for the year ended December 31, 2016

Kinson Corporation Expenses Resulting from Intangible Assets Transactions For the Year Ended December 31, 2016
Franchise from Rapid Copy Service, Inc. ($52,400 * 14%)	$7,336
Amortization of franchise (Schedule 1)	$7,640
Franchise fee on revenues from operations (920,000 * 5%)	$46,000
Amortization of patent (Schedule 2)	$1,512
Amortization of trademark (from Schedule 4)	$1,390
Total expenses	$63,878

Schedule 4: Amortization of trademark

Amortization, 1/1/2016 to 6/30/2016 ($30,000 * 1/25 * 6/12)	$600
Amortization, 7/1/2016 to 12/31/2016 ($34,000 * 1/22 * 6/12)	$790
Total trademark amortization	$1,390

Note: The $68,000 of research and development costs incurred in developing the patent would have been expensed prior to 2016.