Question
A Company entered into a franchise agreement to operate a franchised location beginning on January 1, 2014. The terms of the agreement were that the
A Company entered into a franchise agreement to operate a franchised location beginning on January 1, 2014. The terms of the agreement were that the initial franchise fee was $120,000 to be paid in 5 equal annual payments of $24,000 beginning on January 1, 2014. In addition, the Company must pay the franchisor 7% of the Company's revenue from the operation of the franchise each year. The Company estimates the useful life of this franchise to be 8 years. The appropriate discount rate for the Company is 10%. The present value of the annual payments to be paid beginning on January 1,2014 is $100,077. During 2014 the Company realized revenue in the total amount of $1,080,000 from the operation of the franchise. On January 1, 2013 the Company was granted a patent. The Company incurred a total of $59,724 in experimental and development costs. In addition, the company spent $8,960 in legal fees and other costs to register the patent. The patent is expected to have a useful life of 10 years. The Company purchased a copyright on June 1, 2011 for a total cost of $33,000 and with an estimated useful life of 15 years. On June 1, 2014 the company successfully defended a copyright infringement law suit at a cost of $8,300.
Instructions:
A. Prepare the intangible assets section of the Company's balance sheet as of December 31, 2014. Show supporting calculations in good form.
B. In good form, prepare a schedule showing all expenses resulting from the transactions that would appear on the Company's income statement for the year ending December 31, 2014. Show supporting calculations in good form.
Note: You may round to whole dollars.
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