Question

Cullumber Company has provided information on intangible assets as follows. A patent was purchased from Marin Company for $1,800,000 on January 1, 2019. Cullumber estimated the remaining useful life of the patent to be 10 years. The patent was carried in Marin’s accounting records at a net book value of $1,800,000 when Marin sold it to Cullumber. During 2020, a franchise was purchased from Bramble Company for $510,000. In addition, 5% of revenue from the franchise must be paid to Bramble. Revenue from the franchise for 2020 was $2,530,000. Cullumber estimates the useful life of the franchise to be 10 years and takes a full year’s amortization in the year of purchase. Cullumber incurred research and development costs in 2020 as follows. Materials and equipment $159,000 Personnel 195,000 Indirect costs 106,000 $460,000 Cullumber estimates that these costs will be recouped by December 31, 2023. The materials and equipment purchased have no alternative uses. On January 1, 2020, because of recent events in the field, Cullumber estimates that the remaining life of the patent purchased on January 1, 2019, is only 5 years from January 1, 2020.

(a) Your answer is correct. Prepare the intangibles section of Cullumber’s balance sheet at December 31, 2020. (Enter account name only and do not provide descriptive information.) CULLUMBER COMPANY Intangibles Section of Balance Sheet choose the accounting period For the Month Ended December 31, 2020December 31, 2020For the Year Ended December 31, 2020 select an opening section name Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity enter a balance sheet item $enter a dollar amount enter a balance sheet item enter a dollar amount select a closing section name Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity $enter a total amount for this section SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT LINK TO TEXT Attempts: 1 of 3 used

(b) Prepare the income statement effect (related to expenses) for the year ended December 31, 2020, as a result of the facts above. (Enter account name only and do not provide descriptive information.) CULLUMBER COMPANY Income Statement Effect choose the accounting period For the Month Ended December 31, 2020December 31, 2020For the Year Ended December 31, 2020 select an opening name for section one Amortization of franchiseAmortization of patentFranchise from Bramble CompanyResearch and development costsPayment to Bramble CompanyTotal charged against incomePatent from Marin Company : select an item     Research and development costs    Amortization of franchise    Patent from Marin Company    Payment to Bramble Company    Amortization of patent    Total charged against income    Franchise from Bramble Company     $enter a dollar amount select an opening name for section two Research and development costsPatent from Marin CompanyAmortization of patentFranchise from Bramble CompanyAmortization of franchisePayment to Bramble CompanyTotal charged against income : select an item     Patent from Marin Company    Franchise from Bramble Company    Research and development costs    Total charged against income    Amortization of franchise    Amortization of patent    Payment to Bramble Company     $enter a dollar amount select an item     Franchise from Bramble Company    Total charged against income    Payment to Bramble Company    Amortization of patent    Amortization of franchise    Research and development costs    Patent from Marin Company     enter a dollar amount enter a subtotal of the two previous amounts select an item Payment to Bramble CompanyResearch and development costsTotal charged against incomeFranchise from Bramble CompanyAmortization of patentPatent from Marin CompanyAmortization of franchise enter a dollar amount select a closing name     Payment to Bramble Company    Amortization of franchise    Amortization of patent    Patent from Marin Company    Franchise from Bramble Company    Research and development costs    Total charged against income     $enter a total amount

Answer 1

(a)

CULLUMBER COMPANY
Intangibles Section of Balance Sheet
December 31, 2020
Intangible Assets:
Patents	1296000
Franchise	459000
Total intangible assets $	1755000

Working:

1	Purchase cost of patent	1800000
	Less: Amortization for 2019 ($1800000/10)	180000
		1620000
	Less: Amortization for 2020 ($1620000/5)	324000
	Balance in Patent, Dec. 31, 2020	1296000
2	Purchase cost of franchise	510000
	Less: Amortization for 2020 ($510000/10)	51000
	Balance in Franchise, Dec. 31, 2020	459000

(b)

CULLUMBER COMPANY
Income Statement Effect
For the Year Ended December 31, 2020
Patent from Marin Company:
Amortization of patent		324000
Franchise from Bramble Company:
Amortization of franchise	51000
Payment to Bramble (5% x $2530000)	126500
		177500
Research and development costs		460000
Total charged against income $		961500