1. Compute for the carrying value of the intangible assets at December 31, 2019. 2. How much is the Net Income (Loss) of the company for the year ended December 31, 2019?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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1. Compute for the carrying value of the intangible assets at December 31, 2019.

2. How much is the Net Income (Loss) of the company for the year ended December 31, 2019?

In your initial audit of the financial statements of BOLT CO., you discovered the following
transactions relating to the company's intangible assets.
a. On January 2, 2014, the Company spent P400,000 to apply for and obtain a patent on a newly
developed product. The patent had an estimated useful life of 10 years. At the beginning of
2018, the company spent P60,000 in successfully prosecuting an attempted patent
infringement. At the beginning of 2019. the company purchased for P250,000, a patent that
was expected to prolong the life of its original patent by 4 years
b. On January 1, 2019, the Company signed an agreement to operate as a franchise of LIGHT
IT Generators Inc. for an initial franchise fee of P500,000. The franchise has a definite life and
the company estimates that this franchise will benefit the Company for only 10 years. Total
Revenue in 2019 amounted to P1,500,000. In addition, the company paid P100,000 to an
advertising agency to promote the products resulting from the franchise agreement. Cost of
training employees who will use the machine amounted to P50,000.
The agreement also specifies that BOLT will have to pay LIGHT IT Generators an
amount of equal to 5% of its annual revenue not later that February 14 of the year following
the year of sale.
c. During 2019, the company incurred costs to develop and produce computer software
product as follows:
Salaries of programmers doing the research
Costs incurred before technological feasibility has been established
Other expenses incurred prior to establishing technological feasibility
Coding costs to establish technological feasibility
Other testing costs after establishing technological feasibility
Costs to produce and prepare software for sale
Costs to produce product masters
Costs to produce the software from the masters
Costs of packaging
Website development costs
High powered computers acquired to produce the software
1,300,000
1,400,000
600,000
450,000
100,000
250,000
50,000
370,000
20,000
150,000
500,000
Total Revenue from the software amounted to P2,000,000 in 2019. The company has sold 40% of the
computer software during the year 2019. The company estimates the future revenues of P8,000,000
from this software. The computers acquired are estimated to have a useful life of 5 years depreciated
using the straight-line method. The technological feasibility of the computer software was achieved
on December 31, 2019.
Transcribed Image Text:In your initial audit of the financial statements of BOLT CO., you discovered the following transactions relating to the company's intangible assets. a. On January 2, 2014, the Company spent P400,000 to apply for and obtain a patent on a newly developed product. The patent had an estimated useful life of 10 years. At the beginning of 2018, the company spent P60,000 in successfully prosecuting an attempted patent infringement. At the beginning of 2019. the company purchased for P250,000, a patent that was expected to prolong the life of its original patent by 4 years b. On January 1, 2019, the Company signed an agreement to operate as a franchise of LIGHT IT Generators Inc. for an initial franchise fee of P500,000. The franchise has a definite life and the company estimates that this franchise will benefit the Company for only 10 years. Total Revenue in 2019 amounted to P1,500,000. In addition, the company paid P100,000 to an advertising agency to promote the products resulting from the franchise agreement. Cost of training employees who will use the machine amounted to P50,000. The agreement also specifies that BOLT will have to pay LIGHT IT Generators an amount of equal to 5% of its annual revenue not later that February 14 of the year following the year of sale. c. During 2019, the company incurred costs to develop and produce computer software product as follows: Salaries of programmers doing the research Costs incurred before technological feasibility has been established Other expenses incurred prior to establishing technological feasibility Coding costs to establish technological feasibility Other testing costs after establishing technological feasibility Costs to produce and prepare software for sale Costs to produce product masters Costs to produce the software from the masters Costs of packaging Website development costs High powered computers acquired to produce the software 1,300,000 1,400,000 600,000 450,000 100,000 250,000 50,000 370,000 20,000 150,000 500,000 Total Revenue from the software amounted to P2,000,000 in 2019. The company has sold 40% of the computer software during the year 2019. The company estimates the future revenues of P8,000,000 from this software. The computers acquired are estimated to have a useful life of 5 years depreciated using the straight-line method. The technological feasibility of the computer software was achieved on December 31, 2019.
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