Question

Problem 12-3 (Part Level Submission)

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

1.		On January 1, 2017, Bridgeport signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $50,000. Of this amount, $10,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $10,000 each, beginning January 1, 2018. 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, 2017, of the 4 annual payments discounted at 9% (the implicit rate for a loan of this type) is $32,400. The agreement also provides that 6% of the revenue from the franchise must be paid to the franchisor annually. Bridgeport’s revenue from the franchise for 2017 was $840,000. Bridgeport 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.		Bridgeport incurred $80,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2017. Legal fees and other costs associated with registration of the patent totaled $25,600. Bridgeport estimates that the useful life of the patent will be 8 years.
3.		A trademark was purchased from Shanghai Company for $50,000 on July 1, 2014. Expenditures for successful litigation in defense of the trademark totaling $25,500 were paid on July 1, 2017. Bridgeport 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 Bridgeport’s balance sheet at December 31, 2017. (Round all answers to 0 decimal places, e.g. 8,564.)

Answer 1

ANSWER

Bridgeport Corporation
Intangible Assets
December 31,2017
	Franchise	$ 45,000.00
	Trademark	$ 66,000.00
	Patent	$ 22,400.00
	Total Intangible assets	$ 133,400.00
	Note:
1	Franchise cost	$ 50,000.00
	Less: Amortization of franchise ($50,000/10 years)	$ (5,000.00)
	Carring Value of Franchise Dec 31,2017	$ 45,000.00
2	Patent	$ 25,600.00
	Less: Amortization Expenses ($25,600/8 years)	$ (3,200.00)
	Carring Value of Patent Dec 31,2017	$ 22,400.00
3	Cost of trademark	$ 50,000.00
	Less: Amortization of trademark ($50,000*3years/20years)	$ (7,500.00)
	Carring Value as at July 1,2017	$ 42,500.00
	Add: Cost of sucessful defence	$ 25,500.00
	Carring Value as at July 1,2017	$ 68,000.00
	Less: Amortization of trademark ($50,000*1/2years/(20-3years)	$(2,000.00)
	Carring Value as at Dec 31,2017	$ 66,000.00

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