Problem I. (30 points). Information concerning Farris Company's intangible assets are as follows: 1. Farris Company incurred $85,000 of experimental and development costs in its laboratory to develop a patent, which was granted on April 1, 2020. Legal fees and other costs associated with registration of the patent totaled $16,000. Farris Company estimates the useful life of the patent will be 8 years; the legal life of the patent is 20 years. 2. On October 1, 2020, Farris Company signed an agreement to operate as a franchise of Cluck- Cluck Fried Chicken, Inc. for an initial franchise fee of $117,400. The agreement provides that the fee is not refundable and no future services are required of the franchisor. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Farris Company's revenue from the franchise for 2020 was $1,800,000. The estimated useful life of the franchise to be 10 years. 3. A trademark was purchased from Wolfe Company for $64,000 on August 1, 2017. Expenditures for successful litigation in defense of the trademark totaling $16,000 were paid on July 1, 2020. Farris Company expects that the trademark will be continuously renewed. Instructions: Part I: (a) Prepare the intangible asset section of Farris Company's balance sheet at December 31, 2020. Show supporting computations in good form. (b) Prepare the calculations showing the expenses resulting from the transactions that would appear on Farris Company's income statement for the year then ended, December 31, 2020. Show all of your calculations and work in good form on the separate answer sheet. Part II: Your client does not understand that the $2,800,000 it incurred in research and development costs for 2022 were expensed on the income statement. The client is sensitive about earnings and argues that the costs should be capitalized on the balance sheet as intangible assets, improving net income. Further, about forty percent of these costs were research costs, while the other sixty percent were development costs. Please explain to the client in a paragraph how these costs are treated under US GAAP. Why are research and development costs expensed in the period incurred instead of capitalized? No less than ten sentences.

Problem I. ( 30 points). Information concerning Fartis Company's intangible assets are as follows: 1. Farris Company incurred $85,000 of experimental and development costs in its laboratory to develop a patent, which was granted on April 1,2020. Legal fees and other costs associated with registration of the patent totaled $16,000. Farris Company estimates the useful life of the patent will be 8 years; the legal life of the patent is 20 years. 2. On October 1, 2020, Farris Company signed an agreement to operate as a franchise of CluckCluck Fried Chicken, Ine, for an initial franchise fee of $117,400. The agreement provides that the fee is not refundable and no future services are required of the franchisor. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Farris Company's revenue from the franchise for 2020 was $1,800,000. The estimated useful life of the franchise to be 10 years. 3. A trademark was purchased from Wolfe Company for $64,000 on August 1,2017. Expenditures for successful litigation in defense of the trademark totaling $16,000 were paid on July 1, 2020. Farris Company expects that the trademark will be continuously renewed. Instructions: Part I: (a) Prepare the intangible asset section of Farris Company's balance sheet at December 31, 2020. Show supporting computations in good form. (b) Prepare the calculations showing the expenses resulting from the transactions that would appear on Farris Company's income statement for the year then ended, December 31, 2020. Show all of your calculations and work in good form on the separate answer sheet. Part II: Your client does not understand that the $2,800,000 it incurred in research and development costs for 2022 were expensed on the income statement. The client is sensitive about earnings and argues that the costs should be capitalized on the balance sheet as intangible assets, improving net income. Further, about forty percent of these costs were research costs, while the other sixty percent were development costs. Please explain to the client in a paragraph how these costs are treated under US GAAP. Why are research and development costs expensed in the period incurred instead of capitalized? No less than ten sentences