Question

1. Wildhorse purchased a patent from Vania Co. for $1,310,000 on January 1, 2018. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2028. During 2020, Wildhorse 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, 2020?

The amount to be reported

$

2. Wildhorse bought a franchise from Alexander Co. on January 1, 2019, for $300,000. The carrying amount of the franchise on Alexander’s books on January 1, 2019, was $300,000. The franchise agreement had an estimated useful life of 30 years. Because Wildhorse must enter a competitive bidding at the end of 2021, it is unlikely that the franchise will be retained beyond 2028. What amount should be amortized for the year ended December 31, 2020?

The amount to be amortized

$

3. On January 1, 2020, Wildhorse incurred organization costs of $250,000. What amount of organization expense should be reported in 2020?

The amount to be reported

$

4. Wildhorse purchased the license for distribution of a popular consumer product on January 1, 2020, for $161,000. 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, Wildhorsecan renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2020?

The amount to be amortized

$

Answer 1

1) Amortization expense for 2018 and 2019 is = (1310000/10)*2 Amortization expense for 2018 and 2019 is - $ 262,000/. Since the revsied life is of 6 years carrying value of patent have to be amortized over the balance 4 years since 2 years have already amortized. Amortization expense for 2020 is = (1310000-262000)/(6-2) Amortization expense for 2020 is - $ 262,000/. Accumulated amortization expense for three years is - (262000+262000) Accumulated amortization expense for three years is = $ 524,000/. Amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2020 = (Cost - Accumulated Amortization) = (1310000- 524000) = $ 786,000/. The amount to be reported is $ 786,000/. 2) Since there was an uncertainity about the retaining the Franchise at the end of 2028, it is to be amortized over the 10 years form 2019 to 2028. Amount of amortization on the franchise for the year ended December 31, 2020 is = (300000/10) = $ 30,000/. The amount to be amortized is $ 30,000/. 3) Organization costs should be expensed as and when incurred. The amount to be reported is $ 250,000/. As an organization expense for 2020. 4) Since the license can be easily renewed (at nominal cost), it has an indefinite life. So no amortization will be recorded. The license will be tested for impairment in future periods.