P.12-3

Instructions Compute the carrying value of patent No. 758-6002-1A on each of the following dates: (a) December 31, 2011. (b) December 31, 2015. (c) December 31, 2018. P12-3 (L01,2,5) (Accounting for Franchise, Patents, and Trademark) Information concerning Sandro Corporation's intan- gible assets is as follows. 1. On January 1, 2017, Sandro signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $75,000. Of this amount, $15,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,000 each, beginning January 1, 2018. 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, 2017, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Sandro's revenue from the franchise for 2017 anchise for 2017 was $900,000. Sandro esti- mates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper ac- counting treatment for the franchise fee and payments.) 2. Sandro incurred $65,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2017. Legal fees and other costs associated with registration of the patent totaled $17,600. Sandro estimates that the useful life of the patent will be 8 years. 3. A trademark was purchased from Shanghai Company for $36,000 on July 1, 2014, Expenditures for successful litigation in defense of the trademark totaling $10,200 were paid on July 1, 2017. Sandro estimates that the useful life of the trademark will be 20 years from the date of acquisition. Instructions (a) Prepare a schedule showing the intangible assets section of Sandro's balance sheet at December 31, 2017. Show support- ing computations in good form. (b) Prepare a schedule showing all expenses resulting from the transactions that would appear on Sandro's income state ment for the year ended December 31, 2017. Show supporting computations in good form. (AICPA adapted) (L03,4,5) GROUPWORK (Goodwill, Impairment) On July 31, 2017, Mexico Company paid $3,000,000 to acquire all ne common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following balance sheet at the time of the acquisition Current assets $ 800,000 $ 600,000 Current liabilities 500,000 abilities