1. Sunland purchased a patent from Vania Co. for $1,280,000 on January 1, 2015.
ID: 2596004 • Letter: 1
Question
1. Sunland purchased a patent from Vania Co. for $1,280,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Sunland 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. Sunland bought a franchise from Alexander Co. on January 1, 2016, for $390,000. The carrying amount of the franchise on Alexander’s books on January 1, 2016, was $540,000. The franchise agreement had an estimated useful life of 30 years. Because Sunland 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?
Explanation / Answer
Ans.1 Amount to be reported 1280000 - 512000 768000 Amortization for 2015 and 2016 (1280000 / 10)*2 256000 Amortization for 2017 (1280000 - 256000) / 6-2years 256000 Accumulated Amortization 512000 Ans.2 Amount to be reported 39000 In this situation Sunland will amortize his franchise over its full useful life because it is not sure that he will keep the franchise Thus the amortization would be over 10 years (i.e.December 31 2017) 390000 / 10 = 39000
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