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Chapter_12_Problem_solutions - PROBLEM 12-1 Franchises...

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PROBLEM 12-1 Franchises ..................................................................... 48,000 Prepaid Rent .................................................................. 24,000 Retained Earnings (Organization Costs of $6,000 in 2009) ........................................................... 6,000 Retained Earnings ($16,000 – $6,000) ........................ 10,000 Patents ($84,000 + $12,650) ......................................... 96,650 Research and Development Expense ($75,000 + $160,000) .................................................. 235,000 Goodwill ......................................................................... 278,400 Intangible Assets ................................................. 698,050 Franchise Amortization Expense ($48,000 ÷ 8) ......... 6,000 Retained Earnings ($48,000 ÷ 8 X 6/12) ...................... 3,000 Franchises ............................................................ 9,000 Rent Expense ($24,000 ÷ 2) ......................................... 12,000 Retained Earnings ($24,000 ÷ 2 X 3/12) ...................... 3,000 Prepaid Rent ........................................................ 15,000 Patent Amortization Expense ...................................... 9,170 Patents .................................................................. 9,170 ($84,000 ÷ 10) + ($12,650 X 7/115) Note : No amortization of goodwill; goodwill should be tested for impairment on at least an annual basis in future periods.
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PROBLEM 12-2 (a) Costs to obtain patent Jan. 2004 ................... $59,500 2004 amortization ($59,500 ÷ 17) .................... (3,500 ) Carrying value, 12/31/04 .................................. $56,000 All costs incurred prior to January 2004 are related to research and development activities and were expensed as incurred in accordance with GAAP. (b) 1/1/05 carrying value of patent ...................... $56,000 2005 amortization ($59,500 ÷ 17) .................. $3,500 2006 amortization ........................................... 3,500 (7,000 ) 49,000 Legal fees to defend patent 12/06 ................. 42,000 Carrying value, 12/31/06 ................................ 91,000 2007 amortization ($91,000 ÷ 14) .................. 6,500 2008 amortization ........................................... 6,500 (13,000 ) Carrying value, 12/31/08 ................................ $78,000 The costs incurred in 2005 and 2007 are related to research and development activities and are expensed as incurred. (c) 1/1/09 carrying value ...................................... $78,000 2009 amortization ($78,000 ÷ 5) ..................... $15,600 2010 amortization ........................................... 15,600 2011 amortization ........................................... 15,600 (46,800 ) Carrying value, 12/31/11 ................................ $31,200 The legal costs in 2011 were expensed because the suit was unsuccessful.
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PROBLEM 12-3 (a) SANDRO CORPORATION Intangible Assets December 31, 2010 Franchise, net of accumulated amortization of $5,870 (Schedule 1) .................................................................................. $ 52,830 Patent, net of accumulated amortization of $2,200 (Schedule 2) .................................................................................. 15,400 Trademark, net of accumulated amortization of $6,600 (Schedule 3) .................................................................................. 39,600 Total intangible assets .......................................................... $107,830 Schedule 1 Franchise Cost of franchise on 1/1/10 ($15,000 + $43,700) .......................... $ 58,700 2010 amortization ($58,700 X 1/10) ................................................ (5,870 ) Cost of franchise, net of amortization ................................. $ 52,830 Schedule 2 Patent Cost of securing patent on 1/2/10 ................................................. $ 17,600 2010 amortization ($17,600 X 1/8) .................................................. (2,200 ) Cost of patent, net of amortization ...................................... $ 15,400 Schedule 3 Trademark Cost of trademark on 7/1/07 ........................................................... $ 36,000 Amortization, 7/1/07 to 7/1/10 ($36,000 X 3/20) ............................ (5,400 ) Book value on 7/1/10 ...................................................................... 30,600 Cost of successful legal defense on 7/1/10 .................................. 10,200 Book value after legal defense ...................................................... 40,800 Amortization, 7/1/10 to 12/31/10 ($40,800 X 1/17 X 6/12) ............. (1,200 )
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Cost of trademark, net of amortization ............................... $ 39,600
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PROBLEM 12-3 (Continued) (b) SANDRO CORPORATION Expenses Resulting from Selected Intangible Assets Transactions For the Year Ended December 31, 2010 Interest expense ($43,700 X 14%) ................................................. $ 6,118 Franchise amortization (Schedule 1) ............................................ 5,870 Franchise fee ($900,000 X 5%) ....................................................... 45,000 Patent amortization (Schedule 2) .................................................. 2,200 Trademark amortization (Schedule 4) ........................................... 2,100 Total intangible assets .......................................................... $61,288 Note : The $65,000 of research and development costs incurred in developing the patent would have been expensed prior to 2010. Schedule 4 Trademark Amortization Amortization, 1/1/10 to 6/30/10 ($36,000 X 1/20 X 6/12) ............... $ 900 Amortization, 7/1/10 to 12/31/10 ($40,800 X 1/17 X 6/12) ............. 1,200 Total trademark amortization ............................................... $2,100
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PROBLEM 12-4 (a) Income statement items and amounts for the year ended December 31, 2010: Research and development expenses* ........................... $288,000 Amortization of patent ($88,000 ÷ 10 years) .................... 8,800 *The research and development expenses could be listed by the components rather than in one total. The detail of the research and development expenses are as follows: Depreciation—building ($320,000 ÷ 20 years) ....................................................... $ 16,000
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