Chapter $11$ Team Problem

Information concerning Cao Corporation's intangible assets is as follows.

On January $1,2025,$ Cao signed an agreement to operate as a franchisee of ATK Ltd$.$ for

an initial franchise fee of $$150,000.$ Of this amount, $$30,000$ was paid when the

agreement was signed, and the balance is payable in $6$ annual payments of $$20,000$ each,

beginning January $1,2026.$ The agreement provides that the down payment is not

refundable and no future services are required of the franchisor. The present value at

January $1,2025,$ of the $6$ annual payments discounted at $12\%($the implicit rate for a loan

of this type$)$ is $$82,228.$ The agreement also provides that $8\%$ of the revenue from the

franchise must be paid to the franchisor annually. Cao's revenue from the franchise for

$2025$ was $$600,000.$ Cao estimates the useful life of the franchise to be $12$ years. $($Hint:

You may want to refer to Appendix $18$A to determine the proper accounting treatment for

the franchise fee and payments.$)$

Cao incurred $$115,000$ of experimental and development costs in its laboratory to

develop a patent that was granted on July $1,2025.$ Legal fees and other costs during $2025$

associated with registration of the patent totaled $$27,000.$ Expenditures for successful

litigation in defense of the patent totaling $$8,700$ were paid on November $1,2025.$ Cao

estimates that the useful life of the patent will be $10$ years.

A trademark was purchased from Jian Company for $$24,000$ on January $1,2022.$ Cao

estimates that the useful life of the trademark will be $20$ years from the date of acquisition

Instructions: Prepare a schedule showing the intangible assets section of Cao's balance

sheet at December $31,2025.$ Show supporting computations in good form.

EXAMPLE OF FORMAT

CORP NAME

Intangible Assets

Date

Intangible #$1*($net of accumulated amortization$)$

Intangible #$2($net of accumulated amortization$)$

Total Intangible Assets

$$,123,456$

$xx,xxx$

$)$

Schedule $1-$ Intangible Asset #$1$

Cost of intangible $\frac{1}{1}/$YR

Current year amortization

Cost of intangible #$1($net of amortization$)$

$$xxx,xxx$

$\frac{(xx,xxx)}{\text{\$},123,456}$

$*$List the intangible: goodwill, franchise, patent, trademark, etc...