Question

Crane Company has provided information on intangible assets as follows.

A patent was purchased from Larkspur Company for $1,650,000 on January 1, 2019. Crane estimated the remaining useful life of the patent to be 10 years. The patent was carried in Larkspur’s accounting records at a net book value of $1,650,000 when Larkspur sold it to Crane.

During 2020, a franchise was purchased from Pronghorn Company for $480,000. In addition, 5% of revenue from the franchise must be paid to Pronghorn. Revenue from the franchise for 2020 was $2,420,000. Crane estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase.

Crane incurred research and development costs in 2020 as follows.

Materials and equipment		$141,000
Personnel		195,000
Indirect costs		110,000
		$446,000

Crane estimates that these costs will be recouped by December 31, 2023. The materials and equipment purchased have no alternative uses.

On January 1, 2020, because of recent events in the field, Crane estimates that the remaining life of the patent purchased on January 1, 2019, is only 5 years from January 1, 2020.

Prepare the intangibles section of Crane's balance sheet at December 31, 2020. (Enter account name only and do not provide descriptive information.) CRANE COMPANY Intangibles Section of Balance Sheet

Answer 1

Step 1

• An intangible asset is an asset that is not physical in nature.
• Expense is the money spent or the cost incurred by a business in its effort to generate revenue.

Step 2

CRANE COMPANY Intangible Section of Balance Sheet 31 December 2020

Intangible Assets	Amount
Patent (Wn1)	1188000
Franchise (Wn2)	432000
Total intangible assets	1620000

Step 3

CRANE COMPANY Income Statement Effect 31 December 2020
Amortization of patent for the year 2020 (Wn1)	297000
Amortization of franchise for the year 2020 (Wn2)	48000
Payment to Pronghorn company (2420000* 5%)	121000
Research and development cost	446000
Total charged against income	912000

Working Notes:

1. Patent

Patent as on 1 January 2019                                                 = 1650000

Useful life estimated                                                 = 10 years

Depreciation for 2019 (1650000/10)                         = 165000

Patent value on 1 January 2020 (1650000-165000) = 1485000

Revised useful life                                                      = 5 years

Revised deprication will be (1485000/5)                  = 297000

Patent on 31 December 2020 (1485000-297000)     = 1188000      

2. Franchise

Value of Franchise purchased in 2020                      = 480000

Estimated useful life                                                  = 10 years

Depreciation (480000/10)                                          = 48000

Franchise on 31 December 2020 (480000-48000)    = 432000