E12-4B (L01,2,5) (Intangible Amortization) Presented below is selected information for Tartabull Company.
1.) Tartabull purchased a patent from Vania Co. for $3,000,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Tartabull determined that the economic benefits of the patent would not last longer than 7 years from the date of acquisition. What amount should be reported in the bal- ance sheet for the patent, net of accumulated amortization, at December 31, 2017?
2.) Tartabull bought a franchise from Alexander Co. on January 1, 2016, for $900,000. The carrying amount of the franchise on Alexanderâs books on January 1, 2016, was $600,000. The franchise agreement had an estimated useful life of 20 years. Because Tartabull must enter a competitive bidding at the end of 2025, it is unlikely that the franchise will be retained beyond 2025. What amount should be amortized for the year ended December 31, 2017?
3.) On January 1, 2017, Tartabull incurred organization costs of $500,000. What amount of organization expense should be reported in 2017?
4.) Tartabull purchased the license for distribution of a popular consumer product on January 1, 2017, for $400,000. 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, Tartabull can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?
Instructions
Answer the questions asked about each of the situations.
E12-4B (L01,2,5) (Intangible Amortization) Presented below is selected information for Tartabull Company.
1.) Tartabull purchased a patent from Vania Co. for $3,000,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Tartabull determined that the economic benefits of the patent would not last longer than 7 years from the date of acquisition. What amount should be reported in the bal- ance sheet for the patent, net of accumulated amortization, at December 31, 2017?
2.) Tartabull bought a franchise from Alexander Co. on January 1, 2016, for $900,000. The carrying amount of the franchise on Alexanderâs books on January 1, 2016, was $600,000. The franchise agreement had an estimated useful life of 20 years. Because Tartabull must enter a competitive bidding at the end of 2025, it is unlikely that the franchise will be retained beyond 2025. What amount should be amortized for the year ended December 31, 2017?
3.) On January 1, 2017, Tartabull incurred organization costs of $500,000. What amount of organization expense should be reported in 2017?
4.) Tartabull purchased the license for distribution of a popular consumer product on January 1, 2017, for $400,000. 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, Tartabull can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?
Instructions
Answer the questions asked about each of the situations.
Related questions
2. Remaining Life
Taylor Lewis Company has provided information on intangibleassets as follows.
A patent was purchased from Craig Company for $4,000,000 on June1, 2015. Lewis estimated the remaining useful life of the patent tobe eight years. The patent was carried in Craigâs accountingrecords at a net book value of $3,500,000 when Craig sold it toLewis.
During 2016, a franchise was purchased from Faragher Company for$360,000. In addition, 8% of revenue from the franchise must bepaid to Faragher. Revenue from the franchise for 2016 was$1,950,000. Lewis estimates the useful life of the franchise to be12 years and takes a full yearâs amortization in the year ofpurchase.
Lewis incurred research and development costs in 2016 asfollows:
| Materials and equipment | $286,500 |
| Personnel | $153,700 |
| Indirect costs | $95,355 |
| $535,555 |
Lewis estimates that these costs will be recouped by December31, 2019. The materials and equipment purchased have no alternativeuses.
On January 1, 2016, because of recent events in the field, Lewisestimates that the remaining life of the patent purchased on June1, 2015, is only five years from January 1, 2016.
1. Prepare a schedule showing the intangible section of Lewisâsbalance sheet at December 31, 2016. Show supporting computations ingood form.
2. Prepare a schedule showing the income statement effect forthe year ended December 31, 2016, as a result of the facts above.Show supporting computations in good form.
