In: Accounting
Exercise 12-04
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Presented below is selected information for Cullumber
Company.
Answer the questions asked about each of the factual situations.
(Do not leave any answer field blank. Enter 0 for
amounts.)
1. Cullumber purchased a patent from Vania Co. for
$1,340,000 on January 1, 2018. The patent is being amortized over
its remaining legal life of 10 years, expiring on January 1, 2028.
During 2020, Cullumber 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,
2020?
The amount to be reported | $enter the dollar amount to be reported |
2. Cullumber bought a franchise from Alexander Co.
on January 1, 2019, for $3,150,000. The carrying amount of the
franchise on Alexander’s books on January 1, 2019, was $315,000.
The franchise agreement had an estimated useful life of 30 years.
Because Cullumber must enter a competitive bidding at the end of
2021, it is unlikely that the franchise will be retained beyond
2028. What amount should be amortized for the year ended December
31, 2020?
The amount to be amortized | $enter the dollar amount to be amortized |
3. On January 1, 2020, Cullumber incurred
organization costs of $257,500. What amount of organization expense
should be reported in 2020?
The amount to be reported | $enter the dollar amount to be reported |
1) | ||||||||
Annual Amortization = Cost of patent / remaining life of amortization | ||||||||
Annual Amortization = $ 13,40,000 / 10 | ||||||||
$ 134000 | ||||||||
At the beginning of 2020, Unamortized Anount = 13,40,000 - (1,34,000*2) | ||||||||
$ 10,72,000 | ||||||||
Amortozation for 2020 will be (13,40,000/6*3)-(1,34,000*2) = $ 4,02,000 | ||||||||
Accumulated Amortization at dec 31 2020 = (13,40,000/6*3) = $ 6,70,000 | ||||||||
2) | ||||||||
Amortozation for Dec 31, 2020 = (31,50,000/10*2)-(31,50,000/30*1) | ||||||||
$ 5,25,000 | ||||||||
3) | ||||||||
Whole organisation cost $ 2,57,500 shall be expense out during 2020 based | ||||||||
on its benefits also shall be recognised this year. | ||||||||