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.
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.
Related questions
Jolis Company has provided information on the following items:
| 1. | A patent was purchased from Totley Company for $500,000 on January 1, 2015. At that time, Jolis estimated the remaining useful life to be 10 years. The patent was carried on Totleyâs books at $20,000 when it sold the patent. |
| 2. | On March 2, 2016, a franchise was purchased from Unal Company for $240,000. In addition, 8% of the revenue from the franchise must be paid to Unal. Revenue earned during 2016 was $620,000. Jolis believes that the life of the franchise is indefinite and that the franchise is not impaired at the end of 2016. |
| 3. | R&D costs were incurred as follows: (a) materials and equipment, $50,000; (b) personnel, $80,000; and (c) indirect costs, $40,000. The costs were incurred to develop a product that will go on sale in 2017 and will have an expected life of 5 years. |
| 4. | A trade name had been purchased for a sugar substitute at the beginning of 2012 for $80,000. In January 2016, it was suspected that the product caused cancer. Its fair value was estimated to be zero and the trade name was abandoned. |
| 5. | The company purchased the net assets of Lansing Company on September 1, 2016, for $950,000, and Lansing was liquidated. Lansing had the following book (fair) values: cash, $50,000 ($50,000); inventory, $150,000 ($160,000); property, plant, and equipment, $750,000 ($900,000); accounts payable, $75,000 ($75,000); and notes payable, $175,000 ($175,000). Any goodwill is not impaired at the end of 2016. |
Required:
| Prepare journal entries for Jolis for 2016. The company uses the straight-line method of amortization computed to the nearest month over the maximum allowable life. Assume that the company pays all costs in cash, unless otherwise indicated |
