Question
LUNA COMPANY began operations on January 2, 2011. Shown below is the balances of its INTANGIBLE ASSETS as of December 31, 2019. Patents - P1,650,000
LUNA COMPANY began operations on January 2, 2011. Shown below is the
balances of its INTANGIBLE ASSETS as of December 31, 2019.
Patents - P1,650,000
Franchise agreement - 285,000
Organization costs - 306,000
Goodwill - 1,035,000
Additional Information:
1. Patents, acquired January 2, 2012, are being amortized over an
expected useful life of 14 years. Repairs made to equipment covered by
the patents costing P225,000 were debited to the account in January
2016. It is further determined on December 31, 2018, that one of the
patents has a remaining life of only 2 years. This patent was originally
assigned a cost of P630,000.
2. A franchise agreement was signed on January 1, 2019. A P150,000 fee
was paid, covering a 5-year period, at the end of which the company may
renew the agreement by paying P150,000. A decision on renewal has not
been made as of December 31, 2019. The agreement calls for an annual
payment of 5% of revenue. An entry debiting the account for P135,000
was made at the time of the cash payment for 2019.
3. Organization costs include the unamortized portion of amounts paid to
promote for services rendered at the inception of the corporation. These
fees have been amortized since inception over an estimated 40-year life.
4. Goodwill account includes the following: P135,000 - legal expenses
relative to i0ncorporation. These were assigned to the account in January
2011; P600,000 excess of cost over assigned fair value of identifiable net
assets of an enterprise acquired in early 2017; in 2016 P300,000 paid to
an advertising consulting firm for a major advertising effort.
A. Answer the following:
1. What is the carrying value of the Patents on December 31, 2019?
Final Answer: _____________ 2pts.
Supporting Computations: __________________8pts.
2. What is the carrying value of the Franchise Agreement on December 31, 2019?
Final Answer: _______________ 2pts.
Supporting Computations: __________________ 3pts.
3. What is the carrying value of the Organization Costs on December
31, 2019?
Final Answer: _______________ 2pts.
Supporting computations: ________________2pts.
4. What is the carrying value of Goodwill on December 31, 2019?
Final Answer: _______________ 2pts.
Supporting computations: ____________________2pts.
5. What is the total Patent amortization for 2019?
Final Answer: _________________2pts.
Supporting computations: ______________________3pts.
B. Audit adjusting entries at December 31, 2019. (including amortization of Intangible Assets for the year 2019)- 6 adjusting entries x 3pts each =18pts
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