Question
Binford Company has provided information on intangible assets as follows: A patent was purchased from the Lou Company for $1,380,000 on January 1, 2015. Binford
Binford Company has provided information on intangible assets as follows:
A patent was purchased from the Lou Company for $1,380,000 on January 1, 2015. Binford estimated the remaining useful life of the patent to be 15 years. The patent was carried in Lou's accounting records at a net book value of $1,140,000 when Lou sold it to Barb.
During 2016, a franchise was purchased from Rink Company for $470,000. In addition, 6% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2016 was $2,400,000. Binford estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase.
Binford incurred R&D costs in 2016 as follows:
Materials and equipment | $101,000 |
Personnel | 141,000 |
Indirect costs | 59,000 |
$301,000 |
Binford estimates that these costs will be recouped by December 31, 2017.
On January 1, 2016, Binford estimates, based on new events, that the remaining life of the patent purchased on January 1, 2015, is only 10 years from January 1, 2016.
Required:
1. Prepare a schedule showing the intangibles section of Binford's balance sheet at December 31, 2016.
Binford Company | |
Intangible Assets Section of Balance Sheet | |
December 31, 2016 | |
Patent, net (Schedule 1) | $ |
Franchise from Rink Company, net (Schedule 2) | |
Intangible assets | $ |
Schedule 1: Computation of Patent from Lou Company | |
Cost of patent at date of purchase | $ |
Amortization of patent for 2015 | |
$ | |
Amortization of patent for 2016 | |
Patent balance | $ |
Schedule 2: Computation of Franchise from Rink Company | |
Cost of franchise at date of purchase | $ |
Amortization of franchise for 2016 | |
Franchise balance | $ |
2. Prepare a schedule showing the income statement effects for the year ended December 31, 2016, as a result of the previously mentioned facts.
Binford Company | ||
Income Statement Effects | ||
For the Year Ended December 31, 2016 | ||
Patent from Lou Company: | ||
$ | ||
Franchise from Rink Company: | ||
$ | ||
Total expenses | $ |
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