Question

Carla Vista Company has provided information on intangible assets as follows.

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

During 2020, a franchise was purchased from Flint Company for $500,000. In addition, 5% of revenue from the franchise must be paid to Flint. Revenue from the franchise for 2020 was $2,480,000. Carla Vista estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase.

Carla Vista incurred research and development costs in 2020 as follows.

Materials and equipment		$156,000
Personnel		180,000
Indirect costs		105,000
		$441,000

Carla Vista 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, Carla Vista 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 Carla Vista's balance sheet at December 31, 2020. (Enter account name only and do not provide descriptive information.) CARLA VISTA COMPANY Intangibles Section of Balance Sheet $

Answer 1

Any intangible assets need to amortized over its useful life. When the remaining life is revised, it shall also revised to comply to existing suit.

Requirement 1

Intangible Assets section :
Patent	$1,650,000
Less: Accumulated Amortization	$313,500	$1,336,500
Franchise	$500,000
Less: Accumulated Amortization	$50,000	$450,000

Working notes

Computation of patent from tamarisk company
Cost of patent on date of purchase	$                      1,650,000
Amortization of patent for 2019 (1650,000/10)	$                          165,000
	$                      1,485,000
Amortization of patent for 2020 (1485000/5)	$                          148,500
Patent balance at 2020 end	$                      1,336,500
Computation of franchise from Flint company
Cost of franchise at date of purchase (500,000 / 10)	$                          500,000
Amortization of franchise for 2020	$                            50,000
Franchise balance	$                          450,000

Requirement 2

Income statement
Patent from tamarisk company
Amortization for patent	$                          148,500
Franchise from Flint Company
Amortization to Flint for 2020	$                            50,000
franchise fee expense (2480,000 X 5%)	$                          124,000
Research and development costs	$                          441,000
Total charged against income	$                          763,500