Intangibles: Balance Sheet Presentation and Income Statement EffectsValen Company has provided information on intangible assets as follows:A patent was purchased from Lou Company for $1,215,000 on January 1, 2018. Valen estimated the remaining useful life of the patent to be 15 years. The patent was carried in Lou's accounting records at a net book value of $955,000 when Lou sold it to Valen.During 2019, a franchise was purchased from Rink Company for $430,000. In addition, 4% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $2,100,000. Valen estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase.Valen incurred R&D costs in 2019 as follows:Materials and equipment$108,000Personnel133,000Indirect costs78,000 $319,000Valen estimates that these costs will be recouped by December 31, 2020.On January 1, 2019, Valen estimates, based on new events, that the remaining life of the patent purchased on January 1, 2018, is only 10 years from January 1, 2019.Required:1. Prepare a schedule showing the intangibles section of Valen's balance sheet at December 31, 2019. Valen CompanyIntangible Assets Section of Balance SheetDecember 31, 2019Patent, net (Schedule 1)Franchise from Rink Company, net (Schedule 2)Intangible assetsSchedule 1: Computation of Patent from Lou CompanyCost of patent at date of purchaseAmortization of patent for 2018Amortization of patent for 2019Patent balanceSchedule 2: Computation of Franchise from Rink CompanyCost of franchise at date of purchaseAmortization of franchise for 2019Franchise balance2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts.Valen CompanyIncome Statement EffectsFor the Year Ended December 31, 2019Patent from Lou Company: Cost of patent at date of purchaseAmortization of patent for 2018Amortization of patent for 2019Patent balanceSchedule 2: Computation of Franchise from Rink CompanyCost of franchise at date of purchaseAmortization of franchise for 2019Franchise balance2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts.Valen CompanyIncome Statement EffectsFor the Year Ended December 31, 2019Patent from Lou Company:Franchise from Rink Company:Total expenses

Intangible assets are those assets which are not physical in nature or does not have physical…

Answered: A patent was purchased from Lou Company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Intangibles: Balance Sheet Presentation and Income Statement Effects

Valen Company has provided information on intangible assets as follows:

A patent was purchased from Lou Company for $1,215,000 on January 1, 2018. Valen estimated the remaining useful life of the patent to be 15 years. The patent was carried in Lou's accounting records at a net book value of $955,000 when Lou sold it to Valen.
During 2019, a franchise was purchased from Rink Company for $430,000. In addition, 4% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $2,100,000. Valen estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase.
Valen incurred R&D costs in 2019 as follows:

Materials and equipment $108,000

Personnel 133,000

Indirect costs 78,000

$319,000

Valen estimates that these costs will be recouped by December 31, 2020.
On January 1, 2019, Valen estimates, based on new events, that the remaining life of the patent purchased on January 1, 2018, is only 10 years from January 1, 2019.

Required:

1. Prepare a schedule showing the intangibles section of Valen's balance sheet at December 31, 2019.

Valen Company
Intangible Assets Section of Balance Sheet
December 31, 2019
Patent, net (Schedule 1)
Franchise from Rink Company, net (Schedule 2)
Intangible assets
Schedule 1: Computation of Patent from Lou Company
Cost of patent at date of purchase
Amortization of patent for 2018
Amortization of patent for 2019
Patent balance
Schedule 2: Computation of Franchise from Rink Company
Cost of franchise at date of purchase
Amortization of franchise for 2019
Franchise balance
2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts.
Valen Company
Income Statement Effects
For the Year Ended December 31, 2019
Patent from Lou Company:

Cost of patent at date of purchase
Amortization of patent for 2018
Amortization of patent for 2019
Patent balance
Schedule 2: Computation of Franchise from Rink Company
Cost of franchise at date of purchase
Amortization of franchise for 2019
Franchise balance
2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts.
Valen Company
Income Statement Effects
For the Year Ended December 31, 2019
Patent from Lou Company:
Franchise from Rink Company:
Total expenses

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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Materials and equipment	$108,000
Personnel	133,000
Indirect costs	78,000
	$319,000