Balance Sheet Presentation and Income Statement Effects Clinton Company has provided information on intangible assets as follows: A patent was purchased from Lou Company for $1,680,000 on January 1, 2018. Clinton estimated the remaining useful life of the patent to be 10 years. The patent was carried in Lou's accounting records at a net book value of $1,440,000 when Lou sold it to Clinton. During 2019, a franchise was purchased from Rink Company for $500,000. In addition, 6% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $1,800,000. Clinton estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase. Clinton incurred R&D costs in 2019 as follows: Materials and equipment $125,000 Personnel 162,000 Indirect costs 78,000 $365,000 Clinton estimates that these costs will be recouped by December 31, 2020. On January 1, 2019, Clinton estimates, based on new events, that the remaining life of the patent purchased on January 1, 2018, is only 5 years from January 1, 2019. 1. Prepare a schedule showing the intangibles section of Clinton's balance sheet at December 31, 2019. 2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter12: Intangibles

Section: Chapter Questions

Problem 8P

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Intangibles: Balance Sheet Presentation and Income Statement Effects

Clinton Company has provided information on intangible assets as follows:

A patent was purchased from Lou Company for $1,680,000 on January 1, 2018. Clinton estimated the remaining useful life of the patent to be 10 years. The patent was carried in Lou's accounting records at a net book value of $1,440,000 when Lou sold it to Clinton.
During 2019, a franchise was purchased from Rink Company for $500,000. In addition, 6% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $1,800,000. Clinton estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase.
Clinton incurred R&D costs in 2019 as follows:

Materials and equipment $125,000

Personnel 162,000

Indirect costs 78,000

$365,000

Clinton estimates that these costs will be recouped by December 31, 2020.
On January 1, 2019, Clinton estimates, based on new events, that the remaining life of the patent purchased on January 1, 2018, is only 5 years from January 1, 2019.

1. Prepare a schedule showing the intangibles section of Clinton's balance sheet at December 31, 2019.

2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts.

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