Kieso, Intermediate Accounting, 16e Intermediate Accounting (ACCT 3103 and PRINT

Question

Kieso, Intermediate Accounting, 16e Intermediate Accounting (ACCT 3103 and PRINTER VERSION Exercise 12-8 Carter Company has provided information on intangible assets as follows A patent was purchased from Ford Company for $2,000,000 on January 1, 2016. Carter estimated the remaining useful life of the patent to be 10 years. The patent was carried in Ford's accounting records at a net book value of $2,000,000 when Ford sold it to Carter During 2017 a franchise was purchased from polo Comp any for S480 000. In addition, 5% of revenue rom the franchise must be paid to Polo Revenue from the ranchi e for 2017 $2,500,000. Carter estimates the useful life of the franchise to be 10 years and takes a fuill year's amortization in the year of purchase. Carter incurred research and development costs in 2017 as follows Materials and equipment Personnel Indirect costs 142,000 189,000 102,000 5433,000 Carter estimates that these costs will be recouped by December 31, 2020. The materials and equipment purchased have no alternative uses. On January 1, 2017, because of recent events in the field Carter estimates that the renaling life of the patent purchased on lan ary t, 2016 k only S yeen fin inay·2017 Prepare the intangibles section of Carter's balance sheet at December 31, 2017. (Enter account name only and do not provide descriptive information.) CARTER COMPANY Intangibles Section of Balance Sheet

Explanation / Answer

Working 1) Computation of Patent from Ford Company Cost of Patent at date of purchase $ 2,000,000.00 Amortization of Patent for 2016=($2000000/10) $      200,000.00 Balance $ 1,800,000.00 Amortization of Patent for 2017=($1800000/5) $      360,000.00 Patent Balance $ 1,440,000.00 2) Computation of Franchise from Polo Company Cost of Franchise at the date of purchase $      480,000.00 Amortization of patent for 2017=($480000/10) $        48,000.00 Franchise Balance $      432,000.00 Carter Company Intangible Section of Balance Sheet December 31st 2017 Patent from ford company net of Accumulated amortization=($2000000-$200000-$360000) $ 1,440,000.00 Franchise from Polo Company,net of accumulated amortization=($480000-$48000) $      432,000.00 Total Intangibles $ 1,872,000.00 Estimated useful life of patent of Ford company for 2016 10 Years Estimated useful life of patent of Ford company for 2017 5 Years Estimated useful life of Franchise from polo company for 2017 10 Years Carter Company Income Statement Effect For the Year Ended December 31st 2017 Patent from ford company Amortization for 2017 $         360,000.00 Franchise from Polo Company Amortization for 2017 $        48,000.00 Add: Payment to Polo company=($2500000*5%) $      125,000.00 $         173,000.00 Research & Development Cost=($142000+$189000+$102000) $         433,000.00 Total Amount charged against Revenue $         966,000.00

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