Intangibles: Balance Sheet Presentation and Income Statement Effects

Binford Company has provided information on intangible assets as follows:

A patent was purchased from the Lou Company for $1,695,000 on January 1, 2015. Binford estimated the remaining useful life of the patent to be 10 years. The patent was carried in Lou's accounting records at a net book value of $1,455,000 when Lou sold it to Barb.

During 2016, a franchise was purchased from Rink Company for $590,000. In addition, 6% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2016 was $2,000,000. Binford estimates the useful life of the franchise to be 5 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	$114,000
Personnel	160,000
Indirect costs	79,000
	$353,000

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 5 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		$