Reference no: EM13872227
Purpose: This exercise will review the accounting guidelines related to three types of intangible assets-patent, franchise, and trademark.
Information concerning Linda Heckenmueller Corporation's intangible assets follows:
1. Heckenmueller incurred $85,000 of experimental and development costs in its laboratory to develop a patent which was granted on January
2, 2014. Legal fees and other costs associated with registration of the patent totaled $16,000. Heckenmueller estimates that the useful life of the patent will be 8 years; the legal life of the patent is 20 years.
2. On January 1, 2014, Heckenmueller signed an agreement to operate as a franchisee of Cluck-Cluck Fried Chicken, Inc. for an initial franchise fee of $117,400. The agreement provides that the fee is not refundable and no future services are required of the franchisor. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Heckenmueller's revenue from the franchise for 2014 was $1,800,000. Heckenmueller estimates the useful life of the franchise to be 10 years.
3. A trademark was purchased from Wolfe Company for $64,000 on July 1, 2011. Expenditures for successful litigation in defense of the trademark totaling $16,000 were paid on July 1, 2014. Heckenmueller estimates that the trademark will have an indefinite life.
Instructions
(a) Prepare a schedule showing the intangible asset section of Heckenmueller's balance sheet at December 31, 2014. Show supporting computations in good form.
(b) Prepare a schedule showing all expenses resulting from the transactions that would appear on Heckenmueller's income statement for the year ended December 31, 2014. Show supporting computations in good form.
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