Devon Harris Company has provided information on intangible assets as follows. A patent was purchased from Bradtke
Question:
Devon Harris Company has provided information on intangible assets as follows.
A patent was purchased from Bradtke Company for $2,500,000 on January 1, 2018. Harris estimated the remaining useful life of the patent to be 10 years. The patent was carried in Bradtke's accounting records at a net book value of $2,000,000 when Bradtke sold it to Harris.
During 2019, a franchise was purchased from Greene Company for $580,000. In addition, 5% of revenue from the franchise must be paid to Greene. Revenue from the franchise for 2019 was $2,500,000. Harris estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase.
Harris incurred research and development costs in 2019 as follows.
Materials and equipment...........................$142,000
Personnel...............................................189,000
Indirect costs..........................................102,000
..........................................................$433,000
Harris estimates that these costs will be recouped by December 31, 2022, but due to uncertainty in the market, its process has not achieved economic viability. The materials and equipment purchased have no alternative uses.
On January 1, 2019, because of recent events in the field, Harris estimates that the remaining life of the patent purchased on January 1, 2018, is only 5 years from January 1, 2019.
Instructions
a. Prepare a schedule showing the intangibles section of Harris's statement of financial position at December 31, 2019. Show supporting computations in good form.
b. Prepare a schedule showing the income statement effect for the year ended December 31, 2019, as a result of the facts above. Show supporting computations in good form.
Intangible AssetsAn intangible asset is a resource controlled by an entity without physical substance. Unlike other assets, an intangible asset has no physical existence and you cannot touch it.Types of Intangible Assets and ExamplesSome examples are patented...
Step by Step Answer:
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield