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 Intangible Assets $

Answer 1

Answer-CARLA VISTA COMPANY

Intangible section of Balance Sheet

For the Year Ended December 31,2020

Patent from Tamarisk Company	$1,188,000
Franchise from Flint Company	$450,000
Total Intangible Assets	$1,638,000

Working Notes:-1-Calculation of book value of patent:-

Yearly amortization expenses	$1,650,000/10
Yearly amortization expenses	=$165,000
Book value of Patent on 31 December 2019	($1,650,000-$165,000)
Book value of Patent on 31 December 2019	=$1,485,000
Amortization expenses	$1,485,000/5
Amortization expenses	$297,000
Book value of Patent on 31 December 2020	$1,485,000-$297,000
Book Value of Patent	$1,188,000
2-Calculation of book value of Franchise
Amortization expenses	$500,000/10
Amortization expenses	=$50,000
Book value of Franchise on 31 December 2020	$500,000-$50,000
Book value of Franchise	=$450,000

CARLA VISTA COMPANY

Income Statement

For the year ended December 31,2020

Patent amortization		$297,000
Franchise from Flint Company
Amortization expenses	$50,000
Payment to Flint Company($2,480,000*5%)	$124,000
		$174,000
Research and development cost		$441,000
		$912,000