Munn Inc. reported other noncurrent asset account balances on December 31, 2020, as follows. Patent $384,000...
Munn Inc. reported other noncurrent asset account balances on December 31, 2020, as follows.
| Patent | $384,000 |
| Accumulated amortization | (48,000) |
| Net patent | $336,000 |
Transactions during 2021 and other information relating to Munn’s other noncurrent assets include the following.
1. The patent was purchased from Grey Company on January 2, 2019, when the remaining legal life was 16 years. On January 1, 2021, Munn determined that the remaining useful life of the patent was only eight years from the date of its acquisition.
2. On January 1, 2021, in connection with the purchase of a trademark from Cody Corp., the parties entered into a noncompetition agreement. Munn paid Cody $1,600,000, of which 75% related to the trademark and 25% reflected Cody’s agreement not to compete for a period of five years in the line of business covered by the trademark. Munn considers the life of the trademark to be indefinite.
3. On January 1, 2021, Munn acquired all the noncash assets and assumed all liabilities of Amboy Company at a cash purchase price of $2,400,000. Munn determined that the fair value of the identifiable net assets acquired in the transaction is $1,600,000.
4. Munn incurred the following research and development costs in 2021.
| Salaries and related expenses related to development of patents | $250,000 |
| Supplies | 30,000 |
| Allocated facility costs | 40,000 |
Required
a. Prepare a schedule of amortization for 2021 relating to Munn’s intangible assets assuming straight-line amortization.
| 2021 Amortization Expense | |
|---|---|
| Patent | |
| Noncompete agreement | |
| Total |
b. Prepare the balance sheet presentation of intangible assets for Munn on December 31, 2021, and the income statement presentation for the year ended December 31, 2021.
| Munn Inc. Balance Sheet December 31, 2021 |
|
|---|---|
| Intangible assets | |
| Patent, net | |
| Trademark | |
| Noncompete agreement, net | |
| Goodwill | |
| Munn Inc. Income Statement For the year ended December 31, 2021 |
|
|---|---|
| Other expenses | |
| Amortization expense | |
| Research and development expense | |
Homework Answers
a.
| 2021 Amortization Expense | |
| Patent | 56000 |
| Noncompete agreement | 80000 |
| Total | 136000 |
The book value of the patent on January 1, 2021, $336000 will be amortized over its remaining useful life which is 8 - 2 = 6 years.
Amortization expense for patent = $336000/6 = $56000
Amortization expense for noncompete agreement = (25% x $1600000)/5 = $400000/5 = $80000
b.
| Munn Inc. | |
| Balance Sheet | |
| December 31, 2021 | |
| Intangible assets | |
| Patent, net | 280000 |
| Trademark | 1200000 |
| Noncompete agreement, net | 320000 |
| Goodwill | 800000 |
Patent, net = $336000 - $56000 = $280000
Trademark = 75% x $1600000 = $1200000
Noncompete agreement, net = $400000 - $80000 = $320000
Goodwill = $2400000 - $1600000 = $800000
| Munn Inc. | |
| Income Statement | |
| For the year ended December 31, 2021 | |
| Other expenses | |
| Amortization expense | 136000 |
| Research and development expense | 320000 |
Research and development expense = $250000 + $30000 + $40000 = $320000
Add Answer to:
Munn Inc. reported other noncurrent asset account balances on
December 31, 2020, as follows.
Patent
$384,000...
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is as follows
1.On January 1, 2020, Martinez signed an agreement to operate as
a franchisee of Hsian Copy Service, Inc. for an initial franchise
fee of $77,500. Of this amount, $15,500 was paid when the agreement
was signed, and the balance is payable in 4 annual payments of
$15,500 each, beginning January 1, 2021. The agreement provides
that the down payment is not refundable and no future services are
required of the franchisor....
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