Question

Answer the questions asked about each of the factual situations. 1. Alatorre purchased a patent from Vania Co. for $1,715,300 on January 1, 2012. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2022. During 2014, Alatorre 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, 2014? The amount to be reported $ 2. Alatorre bought a franchise from Alexander Co. on January 1, 2013, for $352,600. The carrying amount of the franchise on Alexander’s books on January 1, 2013, was $498,700. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2015, it is unlikely that the franchise will be retained beyond 2022. What amount should be amortized for the year ended December 31, 2014? The amount to be amortized $ 3. On January 1, 2014, Alatorre incurred organization costs of $260,100. What amount of organization expense should be reported in 2014? The amount to be reported $ 4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2014, for $173,400. 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, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2014? The amount to be amortized

Answer 1

1. Till 31st december 2013 Alatorre have amortized patent by expecting the useful life of 10 years so the amortization amount per year was $1715300/10years=171530 so balance in patent acoount as n 31st december2013 was 1715300-171530-171530= $1372240 . In the year 2014 the useful life of patent is revised to 6 years now the amortization amount per year will be revised and it will be 1715300/6= $285883 hense for the years 2012,2013 & 2014 amortization amount will be $285883*3= $857650 Thus the amount to be reported on 31st december 2014 will be $1715300-$857650 = $857650

3. An entity is reqired to test an intangible asset with an indefinite useful life for impairment by compairing its recoverable amount with its carrying amount (a) annually,and (b)whenever there is an indication that the intangible asset may be impaired. In the given question there is no indication for reassessing useful life as finite rather than infinite so asset can not be impair so orgnization cost will be reported with its full acquisition cost which is $260100 as on 31st december 2014.