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Amortization of Franchise and Patent Costs

Question

Presented below is selected information for Palmiero Company.

1. Palmiero purchased a patent from Vania Co. for $1,500,000 on January 1, 2010. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2020. During 2012, Palmiero 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, 2012?

2. Palmiero bought a franchise from Dougherty Co. on January 1, 2011, for $350,000. The carrying amount of the franchise on Dougherty's books on January 1, 2011, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Palmiero must enter a competitive bidding at the end of 2020, it is unlikely that the franchise will be retained beyond 2020. What amount should be amortized for the year ended December 31, 2012?

3. On January 1, 2010, Palmiero incurred organization costs of $275,000. What amount of organization expense should be reported in 2012?

4. Palmiero purchased the license for distribution of a popular consumer product on January 1, 2012, 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, Palmiero can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2012?

Instructions

Answer the questions asked about each of the factual situations.

Summary

The question belongs to Accounting and it is about 4 scenarios where Palmiero buys a patent, buys a franchise. As part of buying patent and buying a franchise, Palmiero has incurred expenses which need to be amortized. The amortization for the year 2012 needs to be calculated.

Total Word Count 156


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