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    Coursework 6 - Intangible Assets

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    Nezer Vergara
    The document provides details on three problems involving accounting for intangible assets: 1) Amsterdam Enterprises incurred costs to develop and patent a new machine, and must calculate R&D expense, patent carrying value, amortization expense, and carrying value in subsequent years. 2) The July Company obtained patents in 2009 and 2014, and must record journal entries for transactions related to the patents through 2017. 3) Sun Company signed a 10-year franchise agreement in 2016 requiring an upfront fee and annual payments, and must calculate the cost of the franchise, 2016 amortization expense, and record related journal entries.

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    Coursework 6 - Intangible Assets

    Uploaded by

    Nezer Vergara
    356 views3 pages
    The document provides details on three problems involving accounting for intangible assets: 1) Amsterdam Enterprises incurred costs to develop and patent a new machine, and must calculate R&D expense, patent carrying value, amortization expense, and carrying value in subsequent years. 2) The July Company obtained patents in 2009 and 2014, and must record journal entries for transactions related to the patents through 2017. 3) Sun Company signed a 10-year franchise agreement in 2016 requiring an upfront fee and annual payments, and must calculate the cost of the franchise, 2016 amortization expense, and record related journal entries.

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    Coursework 6- Intangible Assets

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    The document provides details on three problems involving accounting for intangible assets: 1) Amsterdam Enterprises incurred costs to develop and patent a new machine, and must calculate R&D expense, patent carrying value, amortization expense, and carrying value in subsequent years. 2) The July Company obtained patents in 2009 and 2014, and must record journal entries for transactions related to the patents through 2017. 3) Sun Company signed a 10-year franchise agreement in 2016 requiring an upfront fee and annual payments, and must calculate the cost of the franchise, 2016 amortization expense, and record related journal entries.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    356 views3 pages

    Coursework 6 - Intangible Assets

    Uploaded by

    Nezer Vergara
    The document provides details on three problems involving accounting for intangible assets: 1) Amsterdam Enterprises incurred costs to develop and patent a new machine, and must calculate R&D expense, patent carrying value, amortization expense, and carrying value in subsequent years. 2) The July Company obtained patents in 2009 and 2014, and must record journal entries for transactions related to the patents through 2017. 3) Sun Company signed a 10-year franchise agreement in 2016 requiring an upfront fee and annual payments, and must calculate the cost of the franchise, 2016 amortization expense, and record related journal entries.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Intangible Assets

    Coursework

    Problem 1
    On January 2, 2016, Amsterdam Enterprises, Inc. developed a new machine for manufacturing
    baseballs. Because the machine is considered very valuable, the company had it patented. The
    following expenditures were incurred in developing and patenting the machine in 2016:

    Purchase of special equipment (cost was P600,000)


    recoverable amount after development of the new machine is P460,000
    Research salaries and fringe benefits for engineers and scientists P51,300
    Costs of testing prototype P70,800
    Fees paid to Philippine Patent Office P7,500
    Drawings required by the patent office to be filed with patent application P14,100
    Legal costs of filing for patent P38,100

    Amsterdam elected to amortize the patent over ten years. Full year amortization is taken up in
    the year of acquisition. At January 2, 2018, Amsterdam paid P72,000 to successfully defend the
    patent in an infringement suit.

    On January 3, 2019, Amsterdam determined that the remaining estimated useful life of the
    patent was five years.

    Required:
    a. Compute the amount charged to Research and Development Expense based on the foregoing
    data.
    b. What is the patent carrying value at December 31, 2017?
    c. What is the amortization expense for the patent for the year ended December 31, 2018?
    d. What is the carrying value of the patent at December 31, 2019?
    Problem 2:
    On January 3, 2009, the July Company spent P196,000 to apply for and obtain a patent on a
    newly developed product. The patent had an estimated useful life of 10 years. At the beginning
    of 2011, the company spent P28,000 in successfully prosecuting an attempted infringement of
    the patent.

    At the beginning of 2014, the company purchased for P60,000 a patent that was expected to
    prolong the life of its original patent by 5 years. On July 1, 2017, a competitor obtained rights to
    a patent which made the company’s patent obsolete.

    Required:
    Prepare journal entries to record the transactions relative to the patents from January 3, 2009
    to July 1, 2017
    Problem 3:
    On January 1, 2016, Sun Company signed an agreement to operate as a franchisee for 10 years
    for a franchise fee of P1,400,000. The franchise fee is payable as follows:

    Down payment (upon signing the agreement) P500,000


    Balance of P900,000 payable in three equal annual payments of P300,000
    beginning January 1, 2017. The market rate of interest for similar
    obligation is 10%.

    The agreement also provided for the payment of 5% royalties based on sales. In return for
    these royalties, the franchisor agreed to provide marketing and promotional services for Sun
    Company for the duration of the franchise contract.

    Required:
    a. What is the cost of the franchise acquired on January 1, 2016?
    b. What is the amount of the amortization expense for the franchise for the year ended
    December 31, 2016?
    c. Prepare journal entries to record the acquisition and the amortization of the franchise in the
    year 2016, and the first annual installment on the franchise fee on January 1, 2017.

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