Intangibles: Balance Sheet Presentation and Income Statement Effects Binford Com

Question

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:

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.

2. Prepare a schedule showing the income statement effects for the year ended December 31, 2016, as a result of the previously mentioned facts.

Materials and equipment $114,000 Personnel 160,000 Indirect costs 79,000 $353,000

Explanation / Answer

Requirement 1: Binford Company

Intangible Assets Section of Balance Sheet ason December 31,2016

2. INCOME STATEMENT EFFECT  

FOR THE YEAR ENDED DECEMBER 31, 2016

PATENT,NET (SCH 1) $1223240 FRANCHISE NET (SCHEDULE 2) $47200 TOTA INTENGIBLE ASSETS $1270440 SCHEDULE 1 COST OF PATENT AT THE DATE OF PURCHASE $1695000 AMORTIZATION OF PATENT FOR 2015= 1695000/10(USEFUL LIFE) $169500 AMORTIZATION OF PATENT FOR 2016 =($1695000-$165950)/5 $305810 PATENT NET AS ON DEC 31 2016 $1223240 SCHEDULE 2 COMPUTATION OF FRANCHISE NET COST OF FRANCHISE $59000 AMORTIZATION FOR 2016(59000/5) $11800 NET FRANCHISE $47200

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