Question

Information concerning Concord Corporation’s intangible assets is as follows. 1. On January 1, 2020, Concord signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $60,000. Of this amount, $12,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $12,000 each, beginning January 1, 2021. 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, 2020, of the 4 annual payments discounted at 12% (the implicit rate for a loan of this type) is $36,450. The agreement also provides that 8% of the revenue from the franchise must be paid to the franchisor annually. Concord’s revenue from the franchise for 2020 was $850,000. Concord estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.) 2. Concord incurred $75,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2020. Legal fees and other costs associated with registration of the patent totaled $20,000. Concord estimates that the useful life of the patent will be 8 years. 3. A trademark was purchased from Shanghai Company for $35,000 on July 1, 2017. Expenditures for successful litigation in defense of the trademark totaling $10,200 were paid on July 1, 2020. Concord estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Prepare a schedule showing the intangible assets section of Concord’s balance sheet at December 31, 2020.

Answer 1

ANSWER

a)                                   Concord Corporation
Intangible Assets
December 31, 2020
Franchise, net of accumulated amortization of $4,845
(Schedule 1)		$43,605
Patent, net of accumulated amortization of $2500
(Schedule 2)		17500
Trademark, net of accumulated amortization of $5,250
(Schedule 3)		53,382
Total intangible assets		$114,487
Schedule 1                     Franchise
Cost of franchise on 1/1/20 ($12,000 + $36,450)		$48,450
2020 amortization ($48,450 X 1/10)		(4,845)
Cost of franchise, net of amortization		$43,605
Schedule 2                       Patent
Cost of securing patent on 1/2/20		$20,000
2017 amortization ($20,000 X 1/8)		(2500)
Cost of patent, net of amortization		$17500
Schedule 3                     Trademark
Cost of trademark		$35,000
Amortization, ($35,000 X 3/20)		(5,250)
Book value		29,750
Cost of successful legal defense		10,200
Book value after legal defense		55,000
Amortization, ($55,000 X 1/20 X 6/12)		(1,618)
Cost of trademark, net of amortization		$53,382

(b)                                   Concord Corporation
Expenses Resulting from Selected Intangible Assets Transactions
For the Year Ended December 31, 2020
Interest expense ($36,450 X 12%)		$ 4,374
Franchise amortization (Schedule 1)		4,845
Franchise fee ($850,000 X 8%)		68,000
Patent amortization (Schedule 2)		2500
Trademark amortization (Schedule 4)		2,492
Total intangible assets		$82,211

Schedule 4           Trademark Amortization
Amortization, ($35,000 X 1/20 X 6/12)	$    875
Amortization, ($55,000 X 1/20 X 6/12)	1,617
Total trademark amortization	$2,492

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