Presented below is selected information for Sandhill Company. Answer the questio
ID: 2518246 • Letter: P
Question
Presented below is selected information for Sandhill Company.
Answer the questions asked about each of the factual situations. (Do not leave any answer field blank. Enter 0 for amounts.)
(a) On January 1, 2017, Sandhill incurred organization costs of $278,000. What amount of organization expense should be reported in 2017?
(b) Sandhill bought a franchise from Carla Vista Co. on January 1, 2016, for $187,000. The carrying amount of the franchise on Carla Vista’s books on January 1, 2016, was $249,000. The franchise agreement had an estimated useful life of 10 years. Because Sandhill must enter a competitive bidding at the end of 2018, it is unlikely that the franchise will be retained beyond 2025. What amount should be amortized for the year ended December 31, 2017?
(c) Sandhill purchased a patent from Epp Co. for $400,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Sandhill 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, 2017?
(d) Sandhill purchased the license for distribution of a popular consumer product on January 1, 2017, for $75,600. 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, Sandhill can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?
Explanation / Answer
a)Amount to be reported = $ 278,000 charged to income statement in year of incurrence
b)Amount to be amortized = cost of franchise /useful life
= 187000/10
= $ 18700
c)Initial amortisation :400000/10 =$ 40000 per year or (40000*2) = 80000 for2 years [2015+2016]
Book value at beginning of 2017 = 400000-80000=320000
remaining useful life= 6-2=4
amortisation for 2017= 320000/4=80000
Total amortisation till date : 80000+80000=160000
book value net of amortisation to bereported= 400000-160000=240000
d)As license can be renewed at nominal fee and has indefinite useful life ,it will not be amortised
Amount to be amortized = 0