Accounting for Patents, Franchises, and R&D Devon Harris Company has provided information on intangible assets as follows. A patent was purchased from Bradtke Company for $2,500,000 on January 1, 2009. Harris estimated the remaining useful life of the patent to be 10 years. The patent was carried in Bradtke’s accounting records at a net book value of $2,000,000 when Bradtke sold it to Harris. During 2010, a franchise was purchased from Greene Company for $580,000. In addition, 5% of revenue from the franchise must be paid to Greene. Revenue from the franchise for 2010 was $2,500,000. Harris estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase. Harris incurred research and development costs in 2010 as follows. Harris estimates that these costs will be recouped by December 31, 2013. The materials and equipment purchased have no alternative uses. On January 1, 2010, because of recent events in the field, Harris estimates that the remaining life of the patent purchased on January 1, 2009, is only 5 years from January 1, 2010.

(a) Prepare a schedule showing the intangibles section of Harris’s balance sheet at December 31, 2010. Show supporting computations in good form.

(b) Prepare a schedule showing the income statement effect for the year ended December 31, 2010, as a result of the facts above. Show supporting computations in good form

(AICPA adapted)