Presented below is selected information for Alatorre Company. 1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2018. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2028. During 2020, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2020? 2. Alatorre bought a franchise from Alexander Co. on January 1, 2019, for $400,000. The carrying amount of the franchise on Alexander's books on January 1, 2020, was $400,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2021, it is unlikely that the franchise will be retained beyond 2028. What amount should be amortized for the year ended December 31, 2020? 3. On January 1, 2020, Alatorre incurred organization costs of $275,000. What amount of organization expense should be reported in 2020? 4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2020, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2020? Instructions Answer the questions asked about each of the factual situations.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Presented below is selected information for Alatorre Company.

1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2018. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2028. During 2020, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2020?
2. Alatorre bought a franchise from Alexander Co. on January 1, 2019, for $400,000. The carrying amount of the franchise on Alexander's books on January 1, 2020, was $400,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2021, it is unlikely that the franchise will be retained beyond 2028. What amount should be amortized for the year ended December 31, 2020?
3. On January 1, 2020, Alatorre incurred organization costs of $275,000. What amount of organization expense should be reported in 2020?
4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2020, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2020?

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