Question

Question 9 Presented below is selected information for Carla Vista Company. Answer the questions asked about each of the factual situations. 1) Carla Vista purchased a patent from Vania Co. for $1,180,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. during 2017, Carla Vista determined that the economic benefits o 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? (The amount to be reported_______) 2) Carla Vista bought a franchise from Alexander Co. on January 1, 2016, for $340,000. The carrying amount of the franchise on alexander's books on January 1, 2016, was $490,000. The franchise agreement had an estimated useful life of 30 years. Because Carla Vista must enter a competitive bidding at the end of 2018, it is unlikely that the franchise will be retained beyond 2015. What amount should be amortized for the year ended December 31, 2017? (The amount to be amortized_____) 3) On January 1, 2017, Carka Vista incurred organization costs of $270,000. What amount of organization expense should be reported in 2017? (The amount to be reported_____) 4) Carla Vista purchased the license for distribution of a popular consumer product on January 1, 2017, for $148,000. 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, Carla Vista can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017? (Ther amount to be amortized______)

Answer 1

1. Amount to be reported in the balance sheet for the patent net of accumulated amortization, at December 31, 2017 = 708,000

Amortization for 2015 and 2016= 1180,000 / 10 x 2 = 236,000

Amortization for 2017 = (1180,000 - 236,000) / (6-2) = 236,000

Total amortization =                                                     = 472,000

Amount to be reported in the balance sheet for the patent net of accumulated amortization, at December 31, 2017 = 1180,000 - 472,000 = 708,000

2. The amount to be amortized for the year ended December 31, 2017 = 34,000

Carla's asset should be depreciated over a period of 10 years = 340,000 / 10 = 34,000

(since it is uncertain that Carla would be able to continue the franchise beyond 10 years)

3. The amount of organization expense to be reported in 2017 = 270,000

since it is actually incurred, it is the amount that must be reported

4. The amount to be amortized for the year ended December 31, 2017 = 0

Since the license can be renewed indefinitely, there is no amortization cost