W4-T3 Accounting for Franchise, Patents, and Trade Name (Chapter 12)
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| Exercise: | W4-T3 Accounting for Franchise, Patents, and Trade Name (Chapter 12) | |||||||||
| Information concerning Bailey Corporation's intangible assets is as follows. | ||||||||||
| 1) | On January 1, 2012, Bailey signed an agreement to operate as a franchisee of Young Copy | |||||||||
| Service, Inc. for an initial fee of | $75,000 | . Of this amount, | $15,000 | was paid | ||||||
| when the agreement was signed, and the balance is payable in | 4 | annual | ||||||||
| payments of | $15,000 | each, beginning January 1, 2013. The agreement provides that the | ||||||||
| down payment is not refundable and no future services are required of the franchisor. The | ||||||||||
| present value at January 1, 2012, of the 4 annual payments discounted at 14% (the implicit rate | ||||||||||
| for a loan of this type) is | $43,700 | . The agreement also provides that 5% | ||||||||
| of the revenue from the franchise must be paid to the franchisor annually. Bailey's revenue | ||||||||||
| from the franchise for 2012 was | $950,000 | . Bailey estimates the useful life of the | ||||||||
| franchise to be 10 years. (Hint: You may want to refer to Appendix 18A to determine the | ||||||||||
| proper accounting treatment for the franchise fee and payments.) | ||||||||||
| 2) | Bailey incurred | $65,000 | of experimental and development costs in its laboratory | |||||||
| to develop a patent that was granted on January 2, 2012. Legal fees and other costs | ||||||||||
| associated with registration of the patent totaled | $25,000 | . Bailey estimates | ||||||||
| that the useful life of the patent will be | 10 | years. | ||||||||
| 3) | A trademark was purchased from Kazu Company for | $64,000 | on July 1, 2009. | |||||||
| Expenditures for successful litigation in defense of the trademark totaling | $16,320 | |||||||||
| were paid on July 1, 2012. Bailey estimates that the useful life of the trademark will be | ||||||||||
| 20 | years from the date of acquisition. | |||||||||
| Instructions: | ||||||||||
| (a) | Prepare a schedule showing the intangible assets section of Bailey's balance sheet | |||||||||
| at December 31, 2012. Show supporting computations in good form. | ||||||||||
| (b) | Prepare a schedule showing all expenses resulting from the transactions that would | |||||||||
| appear on Bailey's income statement for the year ended December 31, 2012. Show | ||||||||||
| supporting computations in good form. | ||||||||||
| Franchise Schedule | ||||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Patent Schedule | ||||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Trademark Schedule | ||||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Trademark Amortization - 2012 | ||||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| (a) | Bailey Corporation | |||||||||
| Intangible Assets (partial balance sheet) | ||||||||||
| December 31, 2012 | ||||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Total intangible Assets | $ - | |||||||||
| (b) | Bailey Corporation | |||||||||
| Expenses Resulting from Selected Intangible Asset Transactions | ||||||||||
| For the Year Ended December 31, 2012 | ||||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Description | Amount | |||||||||
| Total expenses | $ - | |||||||||
11 years ago
W4-T3 Accounting for Franchise, Patents, and Trade Name (Chapter 12) A+ Tutorial use as Guide
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