Question

Comprehensive Information concerning Pren-tech Corporation's intangible assets is as follows: a. On January 1, 2019, Pren-tech signed an agreement to operate as a franchisee of Rapid Copy Service Inc. for an initial franchise fee of $101,000 of this amount, $25,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $19,000 each beginning January 1, 2020. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 2, 2019, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $55,400. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Pren- tech's revenue from the franchise for 2019 was $800,000. Pren-tech estimates the useful life of the franchise to be 10 years. b. Pren-tech incurred $74,000 of experimental and development costs in its laboratory to develop a patent, which was granted on January 2, 2019. Legal fees and other costs associated with registration of the patent totaled $17,040. Pren-tech estimates that the useful life of the patent will be 10 years. c. A trademark was purchased from Walton Company for $47,000 on July 1, 2016. Expenditures for successful litigation in defense of the trademark totaling $10,000 were paid on July 1, 2019. Pren-tech estimates that the useful ife of the trademark will be 25 years from the date of acquisition

Answer 1

1.

Pren-Tech Corporation Intangible Assets Section of Balance Sheet December 31, 2019
Franchise from Rapid Copy Service Inc., net	$ 72,360
Patent, net	15,336
Trademark, net	50,193
Total Intangible Assets	$ 137,889

Schedule 1 :

Computation of Franchise from Rapid Copy Service Inc. Schedule I
Cost of Franchise on January 1, 2019	$ 80,400
Amortization for 2019	8,040
Franchise balance, December 31, 2019	$ 72,360

Schedule 2 :

Computation of Patent Schedule 2
Capitalized cost of Patent, January 2, 2019	$ 17,040
Amortization for 2019	1,704
Patent balance, December 31, 2019	$ 15,336

Schedule 3 :

Computation of Trademark Schedule 3
Cost of Trademark at July 1, 2016	$ 47,000
Amortization through December 31, 2018	4,700
Amortization for period January - June 2019	940
Cost of successful litigation in defense of trademark, July 1, 2019	10,000
Balance July 1, 2019	51,360
Amortization for period July 1 - December 31, 2019	1,167
Balance, December 31, 2019	$ 50,193

2.

Pren - Tech Corporation Expenses Resulting from Intangibles Transactions For the year ended December 31, 2019
Franchise from Rapid Copy Service Inc.
Amortization of Franchise	$ 8,040
Franchise fee on revenue from operations	40,000
Imputed interest expense on unpaid balance of initial franchise fee	7,756
Total franchise expenses	$ 55,796
Amortization of patent	1,704
Amortization of trademark	2,107
Total expenses	$ 115,403