Presented below is selected information for Cullumber Company. Answer the questi
ID: 2560611 • Letter: P
Question
Presented below is selected information for Cullumber Company. Answer the questions asked about each of the factual situations. 1. Cullumber purchased a patent from Vania Co. for $1,120,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Cullumber 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? The amount to be reported $ 2. Cullumber bought a franchise from Alexander Co. on January 1, 2016, for $310,000. The carrying amount of the franchise on Alexander’s books on January 1, 2016, was $460,000. The franchise agreement had an estimated useful life of 30 years. Because Cullumber 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? The amount to be amortized $ 3. On January 1, 2017, Cullumber incurred organization costs of $255,000. What amount of organization expense should be reported in 2017? The amount to be reported $ 4. Cullumber purchased the license for distribution of a popular consumer product on January 1, 2017, for $142,000. 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, Cullumber can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017? The amount to be amortized $
Explanation / Answer
1
Amortization for 2015 and 2016=$1,120,000×2/10
=$224,000
Carrying value of patent in the beginning of 2017=$1,120,000-$224,000
=$896,000
Remains life=6years -2 years
=4 years
2017 Amortization=$896,000/4
=$224,000
Accumulated Amortization=$224,000+$224,000
=$448,000
So company should report the patent at Dec. 2017=$1,120,000-$448,000
=$672,000
2.
Company should amortize the franchise over its estimated useful life of 10 years. The amount of Amortization for the year ended Dec 31, 2017:
=$310,000/10
=$31,000
3.
Organization expenses should be expensed as incurred. Therefore $255,000 of organization expense should be reported in 2017 .
4.
Because license can be easily renewed (at nominal cost). It has an indefinite life. Thus , no Amortization will be recorded.