Information concerning Cheyenne Corporation’s intangible assets is as follows. 1. On January 1, 2020, Cheyenne 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, 2021. 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, 2020, of the 4 annual payments discounted at 10% (the implicit rate for a loan of this type) is $31,700. The agreement also provides that 4% of the revenue from the franchise must be paid to the franchisor annually. Cheyenne’s revenue from the franchise for 2020 was $900,000. Cheyenne 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. Cheyenne incurred $60,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2020. Legal fees and other costs associated with registration of the patent totaled $22,400. Cheyenne estimates that the useful life of the patent will be 8 years. 3. A trademark was purchased from Shanghai Company for $44,000 on July 1, 2017. Expenditures for successful litigation in defense of the trademark totaling $11,900 were paid on July 1, 2020. Cheyenne estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter12: Intangibles

Section: Chapter Questions

Problem 8P

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

1.		On January 1, 2020, Cheyenne 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, 2021. 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, 2020, of the 4 annual payments discounted at 10% (the implicit rate for a loan of this type) is $31,700. The agreement also provides that 4% of the revenue from the franchise must be paid to the franchisor annually. Cheyenne’s revenue from the franchise for 2020 was $900,000. Cheyenne 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.		Cheyenne incurred $60,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2020. Legal fees and other costs associated with registration of the patent totaled $22,400. Cheyenne estimates that the useful life of the patent will be 8 years.
3.		A trademark was purchased from Shanghai Company for $44,000 on July 1, 2017. Expenditures for successful litigation in defense of the trademark totaling $11,900 were paid on July 1, 2020. Cheyenne estimates that the useful life of the trademark will be 20 years from the date of acquisition.

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