Question

Marigold Corp., organized in 2020, has the following transactions related to intangible assets. 1/2/20 Purchased patent (6-year life) $474,000 4/1/20 Goodwill purchased (indefinite life) 360,000 7/1/20 14-year franchise; expiration date 7/1/2034 588,000 9/1/20 Research and development costs 166,000

Calculate ending balances as at 12/31/20.



Ending balances
Patents
$enter the ending balance in dollars
Goodwill
$enter the ending balance in dollars
Franchises
$enter the ending balance in dollars
Research and Development Expense
$enter the ending balance in dollars

Answer 1

ending balance for patents = $395,000

ending balance for goodwill = $360,000

ending balance for franchise contract = $567,000

ending balance for research and development = $0

Step-by-step explanation:

first we must calculate the amortization of the patents = carrying value / useful life = $474,000 / 6 years = $79,000 per year

ending balance for patents = $474,000 - $79,000 = $395,000

US GAAP only allows private companies to amortize goodwill (10 years), but since Marigold is a corporation, then it cannot amortize goodwill.

we can amortize franchise contracts over the useful life:

$588,000 / 14 years = $42,000 per year, but only 6 months have passed, so amortization = $42,000 x 0.5 = $21,000

franchise ending balance = $588,000 - $21,000 = $567,000

research and development costs are expenses, they cannot be amortized, they have to be expensed and included in the income statement.