Question

information concerning Martinez Corporation’s intangible assets is as follows

1.On January 1, 2020, Martinez signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $77,500. Of this amount, $15,500 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,500 each, beginning January 1, 2021. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2020, of the 4 annual payments discounted at 13% (the implicit rate for a loan of this type) is $46,100. The agreement also provides that 6% of the revenue from the franchise must be paid to the franchisor annually. Martinez’s revenue from the franchise for 2020 was $980,000. Martinez estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.)

2. Martinez incurred $60,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2020. Legal fees and other costs associated with registration of the patent totaled $24,000. Martinez estimates that the useful life of the patent will be 8 years.

3. A trademark was purchased from Shanghai Company for $30,000 on July 1, 2017. Expenditures for successful litigation in defense of the trademark totaling $11,900 were paid on July 1, 2020. Martinez estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Prepare a schedule showing the intangible assets section of Martinez's balance sheet at December 31, 2020. MARTINEZ CORPORATION Intangible Assets December 31, 2020 Franchise

Answer 1

Schedule of Intangible assets and expenses related to intangible assets has been prepared and presented below

Martinez Corporation Expenses resulting from selected intangible assets transactions Asset Martinez Corporation Intangible Assets December 31, 2020 Capitalised Amortisation Closing Amount Balance 61600 6160 55440 84000 10500 73500 30000 1500 28500 175600 18160 157440 Franchise Patent Trademark Total For the year ending December 31, 2020 Expenses Amount ($) Interest fee (46100*13%) 5993 Annual fee of franchise (980000*6%) 58800 Amortisation of Franchise 6160 Amortisation of Patent 10500 Amortisation of Trademark 1500 Litigation fee 11900 Total 94853