Information concerning Tully Corporation's intangible assets is asfollows:a. On January 1, 2019, Tully signed an agreement to operate as afranchisee of Rapid Copy Service Inc. for an initial franchise fee of$85,000. Of this amount, $25,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,000each beginning January 1, 2020. The agreement provides that thedown payment is not refundable and no future services arerequired of the franchisor. The present value at January 2, 2019, ofthe 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides that 5%of the revenue from the franchise must be paid to the franchisorannually. Tully's revenue from the franchise for 2019 was $900,000.Tully estimates the useful life of the franchise to be 10 years. b. Tully incurred $78,000 of experimental and development costs inits laboratory to develop a patent, which was granted on January 2, 2019. Legal fees and other costs associated with registration of thepatent totaled $16,400. Tully estimates that the useful life of thepatent will be 8 years. C. A trademark was purchased from Walton Company for $40,000on July 1, 2016. Expenditures for successful litigation in defense of the trademark totaling $10,000 were paid on July 1, 2019. Tullyestimates that the useful life of the trademark will be 20 years fromthe date of acquisition. Required:1. Prepare the intangible assets section of Tully's balance sheet atDecember 31, 2019. Prepare supporting schedules showing related computations.2. Prepare a schedule showing all expenses resulting from thetransactions that would appear on Tully's income statement for theyear ended December 31, 2019. Show supporting computations orreference supporting schedules prepared for part 1.
Information concerning Tully Corporation's intangible assets is as
follows:
a. On January 1, 2019, Tully signed an agreement to operate as a
franchisee of Rapid Copy Service Inc. for an initial franchise fee of
$85,000. Of this amount, $25,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,000
each beginning January 1, 2020. The agreement provides that the
down payment is not refundable and no future services are
required of the franchisor. The present value at January 2, 2019, of
the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides that 5%
of the revenue from the franchise must be paid to the franchisor
annually. Tully's revenue from the franchise for 2019 was $900,000.
Tully estimates the useful life of the franchise to be 10 years.
b. Tully incurred $78,000 of experimental and development costs in
its laboratory to develop a patent, which was granted on January 2, 2019. Legal fees and other costs associated with registration of the
patent totaled $16,400. Tully estimates that the useful life of the
patent will be 8 years.
C. A trademark was purchased from Walton Company for $40,000
on July 1, 2016. Expenditures for successful litigation in defense of the trademark totaling $10,000 were paid on July 1, 2019. Tully
estimates that the useful life of the trademark will be 20 years from
the date of acquisition.
Required:
1. Prepare the intangible assets section of Tully's
December 31, 2019. Prepare supporting schedules showing related computations.
2. Prepare a schedule showing all expenses resulting from the
transactions that would appear on Tully's income statement for the
year ended December 31, 2019. Show supporting computations or
reference supporting schedules prepared for part 1.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
