Question

Information concerning Grouper Corporation’s intangible assets is as follows.

1.		On January 1, 2020, Grouper signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $72,500. Of this amount, $14,500 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $14,500 each, beginning January 1, 2021. 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, 2020, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $42,250. The agreement also provides that 7% of the revenue from the franchise must be paid to the franchisor annually. Grouper’s revenue from the franchise for 2020 was $800,000. Grouper estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.)
2.		Grouper incurred $65,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2020. Legal fees and other costs associated with registration of the patent totaled $25,600. Grouper estimates that the useful life of the patent will be 8 years.
3.		A trademark was purchased from Shanghai Company for $38,000 on July 1, 2017. Expenditures for successful litigation in defense of the trademark totaling $13,600 were paid on July 1, 2020. Grouper estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Prepare a schedule showing the intangible assets section of Grouper’s balance sheet at December 31, 2020.

GROUPER CORPORATION Intangible Assets choose the accounting period

select a balance sheet item

		$enter a dollar amount
select a balance sheet item

		enter a dollar amount
select a balance sheet item

		enter a dollar amount
select a closing section name

		$enter a total amount for this section

Prepare a schedule showing all expenses resulting from the transactions that would appear on Grouper’s income statement for the year ended December 31, 2020.

GROUPER CORPORATION Expenses Resulting from Selected Intangible Assets Transactions choose the accounting period

select a balance sheet item

		$enter a dollar amount
select a balance sheet item

		enter a dollar amount
select a balance sheet item

		enter a dollar amount
select a balance sheet item

		enter a dollar amount
select a balance sheet item

		enter a dollar amount
select a closing section name

		$enter a total amount for this section

Answer 1

Answer with working notes is given below

Grouper Corporation Intangible Assets Balance Sheet (Partial) as on December 31, 2020 Franchise $51,075 Patent $22,400 Trademark $44,550 Total $118,025 Grouper Corporation Expenses resulting from selected Intangible assets transactions Interest expense $5,915 ($42,250*14%) Amortization - Franchise $5,675 Franchise Fees $56,000 ($800,000*7%) Amortization - Patent $3,200 Amortization - Trademark $2,300 Total $73,090 Working notes: Franchise Initial payment Present value of 4 annual payments Total cost Useful life of franchise Amortization per year Net Cost $14,500 $42,250 $56,750 10 years $5,675 $51,075 2 Cost of Patent Useful life of patent Amortization per year Patent net cost $25,600 8 years $3,200 ($18,000/8) $22,400 Cost of Research and development costs incurred in developing patent will be expenses 3 Trademark - Purchase cost July 1 2017 Less: Amortization for 3 years till July 1 2020 Net cost on July 1 2020 Cost of successful litigation for defence Revised Book value July 1 2020 Less: Amortization for 6 months in 2020 Net Trademark 31 December 2020 $38,000 $5,700 ($38,000/12*3) $32,300 $13,600 $45,900 $1,350 ($45,900/17/2) $44,550 Total amortisation-Trademark First 6 months Next 6 months Total amortisation-Trademark $950 ($38000/20*0.5) $1,350 $2,300