Exercise NO: 9

Jimmy Carter Company has provided information on intangible assets as follows.\nA patent was purchased from Gerald Ford Company for $2,000,000 on Janua

Jimmy Carter Company has provided information on intangible assets as follows.

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A patent was purchased from Gerald Ford Company for $2,000,000 on January 1, 2013. Carter estimated the remaining useful life of the patent to be 10 years. The patent was carried in Ford’s accounting records at a net book value of $2,000,000 when Ford sold it to Carter.

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During 2014, a franchise was purchased from Ronald Reagan Company for $480,000. In addition, 5%, of revenue from the franchise must be paid to Reagan. Revenue from the franchise for 2014 was $2,500,000.

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Carter estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase.

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Carter incurred research and development costs in 2014 as follows.

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Materials and equipment $142,000

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Personnel 189,000

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Indirect costs 102,000

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$433,000

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Carter estimates that these costs will be recouped by December 31, 2017. The materials and equipment purchased have no alternative uses.

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On January 1, 2014, because of recent events in the field, Carter estimates that the remaining life of the patent purchased on January 1, 2013, is only 5 years from January 1, 2014.

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Instructions

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(a) Prepare a schedule showing the intangibles section of Carter’s balance sheet at December 31, 2014.Show supporting computations in good form.

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(b) Prepare a schedule showing the income statement effect (related to expenses) for the year endedDecember 31, 2014, as a result of the facts above. Show supporting computations in good form.

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