Merca Inc. has provided the auditors with the ff. information: - A patent was purchased on January 1, 2015 from Seagull Co. for 6,000,000. Estimated useful life is 10 years. The patent had a net book value of P6,000,000 when Merca bought it from Seagull. Because of recent events, Merca decides that a change in estimated useful life of intangible assets is necessary. Therefore on January 1, 2016, the remaining useful life of the patent purchased on January 1, 2015, is only 5 years from January 1, 2016. -A franchise was purchased on February 1, 2016 for P1,440,000. The contract was for 20 years and terms include 5% revenue from franchise must be paid to the franchisor. Revenue for 2016 was P7,500,000. -The ff. research and development costs were incurred by Merca in 2016: Materials and equipment 426,000 Personnel 567,000 Indirect costs 306,000 1. On December 31, 2016, the carrying amount of the patent should be: a. 4,320,000 b. 4,920,000 c. 4,800,000 d. 4,400,000 2. Amortization of franchise in 2016 is a. 72,000 b. 132,000 c. 68,400 d. 66,000 3. Amortization of the patent for 2016 is a. 1,200,000 b 1,080,000 c. 600,000 d. 1,000,000
Merca Inc. has provided the auditors with the ff. information: - A patent was purchased on January 1, 2015 from Seagull Co. for 6,000,000. Estimated useful life is 10 years. The patent had a net book value of P6,000,000 when Merca bought it from Seagull. Because of recent events, Merca decides that a change in estimated useful life of intangible assets is necessary. Therefore on January 1, 2016, the remaining useful life of the patent purchased on January 1, 2015, is only 5 years from January 1, 2016. -A franchise was purchased on February 1, 2016 for P1,440,000. The contract was for 20 years and terms include 5% revenue from franchise must be paid to the franchisor. Revenue for 2016 was P7,500,000. -The ff. research and development costs were incurred by Merca in 2016: Materials and equipment 426,000 Personnel 567,000 Indirect costs 306,000 1. On December 31, 2016, the carrying amount of the patent should be: a. 4,320,000 b. 4,920,000 c. 4,800,000 d. 4,400,000 2. Amortization of franchise in 2016 is a. 72,000 b. 132,000 c. 68,400 d. 66,000 3. Amortization of the patent for 2016 is a. 1,200,000 b 1,080,000 c. 600,000 d. 1,000,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Merca Inc. has provided the auditors with the ff. information:
- A patent was purchased on January 1, 2015 from Seagull Co. for 6,000,000. Estimated useful life is 10 years. The patent had a net book value of P6,000,000 when Merca bought it from Seagull. Because of recent events, Merca decides that a change in estimated useful life of intangible assets is necessary. Therefore on January 1, 2016, the remaining useful life of the patent purchased on January 1, 2015, is only 5 years from January 1, 2016.
-A franchise was purchased on February 1, 2016 for P1,440,000. The contract was for 20 years and terms include 5% revenue from franchise must be paid to the franchisor. Revenue for 2016 was P7,500,000.
-The ff. research and development costs were incurred by Merca in 2016:
| Materials and equipment | 426,000 | |
| Personnel | 567,000 | |
| Indirect costs | 306,000 |
1. On December 31, 2016, the carrying amount of the patent should be:
a. 4,320,000
b. 4,920,000
c. 4,800,000
d. 4,400,000
2. Amortization of franchise in 2016 is
a. 72,000
b. 132,000
c. 68,400
d. 66,000
3. Amortization of the patent for 2016 is
a. 1,200,000
b 1,080,000
c. 600,000
d. 1,000,000
4. The amortized cost of the franchise on December 31, 2016 should be:
a. 1,320,000
b. 1,374,000
c. 1,368,000
d. 1,254,000
5. How much should be charged against Seagull’s income for the year ended December 31, 2016?
a. 2,820,000
b. 1,641,000
c. 2,340,000
d. 1,521,000
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