TLC, Inc. began operations in January 2012. Listed below are some transactions for 2012 and 2013.
-During 2012, $125,000 in R&D (expense) expenditures were made to develop a new product that was patented on July 1, 2012. TLC, Inc. believes the patent will provide benefits for 10 years. Legal fees incurred were $24,000 (capitalize).
-On September 1, 2012, TLC, Inc. paid MTS Co. $180,000 for its patent on a successful product. The patent has 6 remaining years in its legal life. TLC, Inc. records amortization expense of $10,000 for 2012 on the patent.
-In early January 2013, TLC, Inc. paid $20,000 in legal fees to defend the patent acquired from MTS Co. TLC's attorney was successful in the lawsuit. TLC, Inc. records amortization expense of $38,000 for 2013 on the patent and legal fees.
-During 2013, R&D (expense) expenditures of $90,000 were incurred in the development of a product. A patent was received on December 1, 2013. Legal fees paid in connection with the patent were $15,000. The economic life of the product is expected to be 5 years.
a. Prepare a partial balance sheet for TLC, Inc. as of December 31, 2013, showing the intangible assets. Provide a separate schedule for each intangible asset to support items listed on the balance sheet. TLC, Inc. amortizes its intangible assets using the straight-line method and recognizes amortization to the nearest month.
b. Prepare a schedule that calculates TLC's expenses related to the above transactions for both 2012 and 2013. Explain the calculations.