Question

Sandhill Company has provided information on intangible assets as follows.

A patent was purchased from Teal Mountain Company for $1,600,000 on January 1, 2019. Sandhill estimated the remaining useful life of the patent to be 10 years. The patent was carried in Teal Mountain’s accounting records at a net book value of $1,600,000 when Teal Mountain sold it to Sandhill.

During 2020, a franchise was purchased from Indigo Company for $450,000. In addition, 5% of revenue from the franchise must be paid to Indigo. Revenue from the franchise for 2020 was $2,530,000. Sandhill estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase.

Sandhill incurred research and development costs in 2020 as follows.

Materials and equipment		$147,000
Personnel		180,000
Indirect costs		117,000
		$444,000

Sandhill 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, Sandhill 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 Sandhill’s balance sheet at December 31, 2020. (Enter account name only and do not provide descriptive information.)

SANDHILL COMPANY Intangibles Section of Balance Sheet choose the accounting period                                                                      December 31, 2020For the Year Ended December 31, 2020For the Month Ended December 31, 2020
select an opening section name                                                                      Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity
enter a balance sheet item					$enter a dollar amount
enter a balance sheet item					enter a dollar amount
select a closing section name                                                                      Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity					$enter a total amount for this section

Prepare the income statement effect (related to expenses) for the year ended December 31, 2020, as a result of the facts above. (Enter account name only and do not provide descriptive information.)

SANDHILL COMPANY Income Statement Effect choose the accounting period                                                                      December 31, 2020For the Year Ended December 31, 2020For the Month Ended December 31, 2020
select an opening name for section one                                                                      Amortization of patentFranchise from Indigo CompanyResearch and development costsTotal charged against incomePayment to Indigo CompanyPatent from Teal Mountain CompanyAmortization of franchise:
select an item                                                                      Total charged against incomeResearch and development costsPatent from Teal Mountain CompanyAmortization of patentFranchise from Indigo CompanyAmortization of franchisePayment to Indigo Company				$enter a dollar amount
select an opening name for section two                                                                      Patent from Teal Mountain CompanyAmortization of franchiseResearch and development costsFranchise from Indigo CompanyPayment to Indigo CompanyTotal charged against incomeAmortization of patent:
select an item                                                                      Total charged against incomeAmortization of franchisePayment to Indigo CompanyResearch and development costsPatent from Teal Mountain CompanyAmortization of patentFranchise from Indigo Company		$enter a dollar amount
select an item                                                                      Total charged against incomeAmortization of patentPayment to Indigo CompanyResearch and development costsPatent from Teal Mountain CompanyFranchise from Indigo CompanyAmortization of franchise		enter a dollar amount
				enter a subtotal of the two previous amounts
select an item                                                                      Amortization of patentResearch and development costsAmortization of franchisePatent from Teal Mountain CompanyPayment to Indigo CompanyFranchise from Indigo CompanyTotal charged against income				enter a dollar amount
select a closing name                                                                      Research and development costsAmortization of franchiseFranchise from Indigo CompanyPatent from Teal Mountain CompanyTotal charged against incomeAmortization of patentPayment to Indigo Company				$enter a total amount

Answer 1

Please find below tables for your reference:

Intangible Section
Date	Account	Debit	Credit
01-01-19	Patent	1,600,000
31-12-19	Depreciation on Patent		160,000
01-01-20	Franchise	450,000
31-12-20	Depreciation on Franchise		450,000
31-12-20	Depreciation on Patent		288,000

Income Statement
Particulars	Amount
Income
Revenue	2,530,000
COGS	126,500
Gross profit	2,403,500
Expenses
Materials & Equipement	147,000
Personnel	180,000
Indirect Costs	117,000
Depreciation on Franchise	450,000
Depreciation on Patent	288,000
Total expenses	1,182,000
PBT	1,221,500