Exercises 735 1. A patent was purchased from Marvin Inc. for $1.2 million on January 1, 2016. Tennessee estimated the patent's remaining useful life to be 10 years. The patent was carried in Marvin's accounting records at a carrying amount of $1,350,000 when Marvin sold it to Tennessee. On January 1, 2017, because of recent events in the field, Tennessee estimates that the remaining life of this patent is only five years from January 1, 2017. 2. During 2017, a franchise was purchased from Burr Led. for $290,000. As part of the deal, Burr must also be paid 5% of revenue from the franchise operations. Revenue from the franchise for 2017 was $1.4 million. Tennessee estimates the franchise's useful life to be 10 years and takes a full year's amortization in the year of purchase. 3. Tennessee incurred the following research costs in 2017: Materials and equipment $ 81,000 mm Personnel 111,000 Indirect costs 55.000 dies bornuon $247.000 enoflauntand Instructions (a) Prepare a schedule showing the intangibles section of Tennessee's balance sheet at December 31, 2017. Show sup- porting calculations in good form. Bing (b) Prepare a schedule showing the income statement effect for the year ended December 31, 2017, as a result of the facts above. Show supporting calculations in good form. (c) Explain how the accounting would differ if Tennessee were a public company. (Adapted from AICPA.)