Question

Question 9 of 9 -/ 15 View Policies Current Attempt in Progress Information concerning Ayayai Corporation's intangible assets is as follows. 1. On January 1, 2020, Ayayai signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $100,000. Of this amount, $20,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $20,000 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 10% (the implicit rate for a loan of this type) is $63,400. The agreement also provides that 8% of the revenue from the franchise must be paid to the franchisor annually. Ayayai's revenue from the franchise for 2020 was $860,000. Ayayai 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. Ayayai incurred $70,000 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 $17,000. Ayayai estimates that the useful life of the patent will be 8 years. 3. A trademark was purchased from Shanghai Company for $46,000 on July 1, 2017. Expenditures for successful litigation in defense of the trademark totaling $10,200 were paid on July 1, 2020. Ayayai estimates that the useful life of the trademark will be 20 years from the date of acquisition

Answer 1

(a)	Ayayai Corporation
Intangible Assets
December 31, 2020
Franchise, net of accumulated amortization of $8340
(Schedule 1)	$75060
Patent, net of accumulated amortization of $2125
(Schedule 2)	14875
Trademark, net of accumulated amortization of $7350
(Schedule 3)	47850
Total intangible assets	$137,785
Schedule 1                     Franchise
Cost of franchise on 1/1/20 ($20000 + $63,400)	$83,400
2020 amortization ($83,400 X 1/10)	(8340)
Cost of franchise, net of amortization	$75,060
Schedule 2                       Patent
Cost of securing patent on 1/2/20	$17000
2020 amortization ($17000 X 1/8)	(2,125)
Cost of patent, net of amortization	$14,875
Schedule 3                     Trademark
Cost of trademark	$46000
Amortization, ($46000 X 3/20)	(6900)
Book value	39,100
Cost of successful legal defense	10,200
Book value after legal defense	$49,300
Amortization, ($49,300 X 1/17 X 6/12)	(1450)
Cost of trademark, net of amortization	$47,850

(b)	Ayayai Corporation
Expenses Resulting from Selected Intangible Assets Transactions
For the Year Ended December 31, 2020
Interest expense ($63400 X 10%)	$ 6340
Franchise amortization (Schedule 1)	8340
Franchise fee ($860,000 X 8%)	68800
Patent amortization (Schedule 2)	2125
Trademark amortization (Schedule 4)	2600
Total intangible assets	$81,865

Schedule 4           Trademark Amortization
Amortization, ($46000 X 1/20 X 6/12)	$    1150
Amortization, ($49300 X 1/17 X 6/12)	1450
Total trademark amortization	$2600