Answers:
1. Intangibles section of Crane's Balance Sheet:
CRANE COMPANY | |
Intangibles Section of Balance Sheet | |
For the year ended December 31,2017 | |
Current Assets | |
Patent from Ford company, net | 1,677,600 |
Franchise from Polo Company, net | 461,700 |
Total intangibles | 2,139,300 |
Calculation :
Computation of Patent from Ford Company: | ||
Cost of patent at date of purchase | 2,330,000 | |
Amortization of patent for 2016 | -233,000 | |
2,097,000 | ||
Amortization of patent for 2017 | -419400 | |
Patent balance | 1,677,600 |
Computation of Franchise from Polo Company | ||
Cost of franchise at date of purchase | 513,000 | |
Amortization of franchise for 2017 | -51300 | |
Franchise balance | 461,700 |
2. Income Statement Effect :
CRANE COMPANY | ||
Income Statement Effect | ||
For the year ended December 31, 2017 | ||
Patent from Ford Company: | ||
Amortization of patent for 2017 | 419,400 | |
Franchise from Polo Company: | ||
Amortization of franchise | 51,300 | |
Payment to Polo Company | 103,640 | |
154,940 | ||
Research and development costs | 442,700 | |
Total Charged against Income | 1,017,040 |
Calculation :
*Amortization of patent for 2017 = Cost of patent at date of purchase - Amortization of patent for 2016/Remaining Life =
= (2,330,000-233,000)/5 = 2,097,000/5 = 419,400
* Amortization of franchise = Cost of franchise at date of purchase/ useful life
=513,000/10 = 51,300
* Payment to Polo Company = Revenue from Franchise * % of revenue from franchise to pay Polo
= 2591000 * 4% = 103,640
Crane Company has provided information on intangible assets as follows. A patent was purchased from Ford...
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