Information concerning Tully Corporation's intangible assets is as follows:

1. On January 1, 2016, Tully signed an agreement to operate as a franchisee of Rapid Copy Service Inc. for an initial franchise fee of $85,000. Of this amount, $25,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,000 each beginning January 1, 2017. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 2, 2016, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Tully's revenue from the franchise for 2016 was $900,000. Tully estimates the useful life of the franchise to be 10 years.
2. Tully incurred $78,000 of experimental and development costs in its laboratory to develop a patent, which was granted on January 2, 2016. Legal fees and other costs associated with registration of the patent totaled $16,400. Tully estimates that the useful life of the patent will be 8 years.
3. A trademark was purchased from Walton Company for $40,000 on July 1, 2013. Expenditures for successful litigation in defense of the trademark totaling $10,000 were paid on July 1, 2016. Tully estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Required:

1. Prepare the intangible assets section of Tully's balance sheet at December 31, 2016. Prepare supporting schedules showing related computations.

TULLY CORPORATION
Intangible Assets Section of Balance Sheet
December 31, 2016
Franchise from Rapid Copy Service, Inc., net (Schedule 1)	$
Patent, net (Schedule 2)
Trademark, net (Schedule 3)
Total intangibles	$ 118,886

Schedule 1: Show supporting computations for the franchise.

Computation of Franchise from Rapid Copy Service, Inc.
Schedule 1
Cost of franchise at January 1, 2016	$
Amortization of franchise for 2016
Franchise balance, December 31, 2016

Schedule 2: Show supporting computations for the patent:

Computation of Patent
Schedule 2
Capitalized cost of patent at January 2, 2016	$
Amortization of patent for 2016
Patent balance, December 31, 2016	$

Schedule 3: Show supporting computations for the trademark. Round computations and final answers to the nearest dollar:

Computation of Trademark
Schedule 3
Cost of trademark at July 1, 2013	$
Amortization through December 31, 2015
Amortization for period January 1 - June 30, 2016
Cost of successful litigation in defense of trademark, July 1, 2016
Balance, July 1, 2016	$
Amortization for period July 1 - December 31, 2016
Balance, December 31, 2016	$

2. Prepare a schedule showing all expenses resulting from the transactions that would appear on Tully's income statement for the year ended December 31, 2016. Enter all amounts as positive numbers.

TULLY CORPORATION
Expenses Resulting from Intangibles Transactions
For the Year Ended December 31, 2016
Franchise from Rapid Copy Service, Inc.
Amortization of franchise (Schedule 1)	$
Franchise fee on revenues from operations
Imputed interest expense on unpaid balance of initial franchise fee
Amortization of patent (Schedule 2)
Amortization of trademark (from Schedule 3)
Total expenses	$ 62,332

Answer rating: 100% (QA)

Franchise Patent Trademark Total Intangible Assets TULLY CORPORATION Intangibles Assets Section of B... View the full answer