Information concerning Bailey Corporation's intangible assets is as follows.
1) On January 1, 2012, Bailey signed an agreement to operate as a franchisee of Young Copy Service, Inc. for an initial fee of $75,000 . Of this amount, $15,000 was paid when the agreement was signed, and the balance is payable in 4 annualpayments of $15,000 each, eginning January 1, 2013. 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, 2012, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) s $43,700 . The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Bailey's evenue rom the franchise for 2012 was $950,000 . Bailey estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Appendix 18A to determine the proper accounting treatment for the franchise fee and payments.)
2) Bailey incurred $65,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2012. Legal fees and other costs associated with registration of the patent totaled $25,000 . Bailey estimates that the useful life of the patent will be 10 years.
3) A trademark was purchased from Kazu Company for $64,000 on July 1, 2009. Expenditures for successful litigation in defense of the trademark totaling $16,320 were paid on July 1, 2012. Bailey estimates that the useful life of the trademark will be 20 years from the date of acquisition.
Instructions:
(a) Prepare a schedule showing the intangible assets section of Bailey's balance sheet at December 31, 2012. Show supporting computations in good form.
(b) Prepare a schedule showing all expenses resulting from the transactions that would appear on Bailey's income statement for the year ended December 31, 2012. Show supporting computations in good form.
Attachment:- week_4team_assignments (1).xls