Answer the questions asked about each of the factual situations. 1. Crane purcha

Question

Answer the questions asked about each of the factual situations.

1. Crane purchased a patent from Vania Co. for $1,220,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Crane 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. Crane bought a franchise from Alexander Co. on January 1, 2016, for $360,000. The carrying amount of the franchise on Alexander’s books on January 1, 2016, was $510,000. The franchise agreement had an estimated useful life of 30 years. Because Crane 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, Crane incurred organization costs of $280,000. What amount of organization expense should be reported in 2017?

4. Crane purchased the license for distribution of a popular consumer product on January 1, 2017, for $152,000. 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, Crane can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?

$

Explanation / Answer

1. Since in the given situation, at the beginning, vthe patent was amortized over its remaining legal life of 10 years till 2017, the amount of the asset will be 9,76,000 I.e, (1,220,000-2,44,000). And during 2017 as it was determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition, now the remaining value if the asset is to be amortized over a period of 4 years vsince already it was amortized for 2 years and the amortization amount for this year I.e, 2017 will be 2,44,000 =9,76,000/4.

An amount of $7,32,000 should be reported in the balance sheet for the patent net of accumulated amortization on December 31,2017.

2. An amount of $ 36,000 should be amortized for the year end 31 December 2017 I.e, $3,60,000/10 years because the amount for which the franchise was purchased by crane was material but not the carrying amount in the books of Alexander.

3. As no other information relating to the organization expense is available in the given question, the entire organization cost of $2,80,000 can be reported as Organization Expense in 2017.

4. $30,400 should be amortized for the year ended 31 December 2017 because it it amortized over a period of 5 years since the information relating to amount of renewal is absent thus the license was amortized over 5 years.

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