Presented below is selected information for Alatorre Company. 1. Alatorre purchased a patent from Vania Co. for

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Presented below is selected information for Alatorre Company.

1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2006. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2016. During 2008, Alatorre 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, 2008?

2. Alatorre bought a franchise from Alexander Co. on January 1, 2007, for $400,000. The carrying amount of the franchise on Alexander’s books on January 1, 2007, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2016, it is unlikely that the franchise will be retained beyond 2016. What amount should be amortized for the year ended December 31, 2008?

3. On January 1, 2008, Alatorre incurred organization costs of $275,000. What amount of organization expense should be reported in 2008?

4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2008, for $150,000. 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, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2008?


Instructions

Answer the questions asked about each of the factual situations.


Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
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Related Book For  book-img-for-question

Intermediate Accounting principles and analysis

ISBN: 978-0471737933

2nd Edition

Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso

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