Remaining Life Taylor Lewis Company has provided information on intangible asset
ID: 2756486 • Letter: R
Question
Remaining Life
Taylor Lewis Company has provided information on intangible assets as follows.
A patent was purchased from Craig Company for $4,000,000 on June 1, 2015. Lewis estimated the remaining useful life of the patent to be eight years. The patent was carried in Craig’s accounting records at a net book value of $3,500,000 when Craig sold it to Lewis.
During 2016, a franchise was purchased from Faragher Company for $360,000. In addition, 8% of revenue from the franchise must be paid to Faragher. Revenue from the franchise for 2016 was $1,950,000. Lewis estimates the useful life of the franchise to be 12 years and takes a full year’s amortization in the year of purchase.
Lewis incurred research and development costs in 2016 as follows:
Lewis estimates that these costs will be recouped by December 31, 2019. The materials and equipment purchased have no alternative uses.
On January 1, 2016, because of recent events in the field, Lewis estimates that the remaining life of the patent purchased on June 1, 2015, is only five years from January 1, 2016.
Prepare a schedule showing the intangible section of Lewis’s balance sheet at December 31, 2016. Show supporting computations in good form.
Prepare a schedule showing the income statement effect for the year ended December 31, 2016, as a result of the facts above. Show supporting computations in good form.
Materials and equipment $286,500 Personnel $153,700 Indirect costs $95,355 $535,555Explanation / Answer
Answer:
a ). Intangible section of Lewis's balance sheet at December 31,2016
Jun 1, 2015 Patents.................................................$ 3,500,000
Dec 31,2015 Patents Appreciation ..................................10,000
Total $ 3,510,000
b.) Income Statement effect for the year ended Dec 31,2016
Revenue.............................................................$ 1,950,000
Less: Research and Development cost
Materials and equipment..........$ 286,500
Personnel...............................$ 1,53,700
Indirect cost.............................$ 95,355
Total Income.................= $ 1,414,445