Presented below is selected information for Blossom Company. Answer the question
ID: 2580414 • Letter: P
Question
Presented below is selected information for Blossom Company.
Answer the questions asked about each of the factual situations.
1. Blossom purchased a patent from Vania Co. for $1,100,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Blossom determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2017?
2. Blossom bought a franchise from Alexander Co. on January 1, 2016, for $300,000. The carrying amount of the franchise on Alexander’s books on January 1, 2016, was $450,000. The franchise agreement had an estimated useful life of 30 years. Because Blossom must enter a competitive bidding at the end of 2018, it is unlikely that the franchise will be retained beyond 2025. What amount should be amortized for the year ended December 31, 2017?
3. On January 1, 2017, Blossom incurred organization costs of $250,000. What amount of organization expense should be reported in 2017?
4. Blossom purchased the license for distribution of a popular consumer product on January 1, 2017, for $140,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Blossom can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?
$
The amount to be reported $Explanation / Answer
Answer 1 )
Net of accumulated amortization at the beginning of 2017 : $1,100,000 - ($1,100,000 * 2 / 10) = $880,000.
Remaining years of the economic benefits of the patent as per the revision : 4 years
Net of accumulated amortization at December 31, 2017 = $880,000 - ( $880,000 / 4 years) = $660,000
Answer 2)
Generally , the amortization of franchise purchased must be spread over the estimated useful life , but since in the present case it is unlikely for Blossom to retain the franchise beyond 2025 ,it should amortize the franchise purchased for 10 years ie 2016 - 2025 .
The amount to be amortized for the year ended December 31, 2017 = $300,000 / 10 years = $30,000
Answer 3
As per GAAP , organization costs usually shall be expensed when incurred as to get capitalize it is very difficult to to determine the future benefits with the future revenues in relation of such costs
Amount of organization expense should be reported in 2017 = $250,000
Answer 4
Since Blossom can easily renew the license by paying a nominal fee , it indicates that the licence has indefinite life span . thus its not required to record any amortization on yearly basis , however such lience shall be subjected to impairment test in future years .
The amount to be amortized $0
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