Clinton Company has provided information on intangible assets as follows.
A patent was purchased from Reagan Company for $2,000,000 on January 1, 2007. Clinton estimated the remaining useful life of the patent to be 10 years. The patent was carried in Reagan's accounting records at a net book value of $2,000,000 when Reagan sold it to Clinton.
During 2008, a franchise was purchased from Bush Company for $480,000. In addition, 5% of revenue from the franchise must be paid to Bush. Revenue from the franchise for 2008 was $2,500,000. Clinton estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase.
Clinton incurred research and development costs in 2008 as follows.
Materials and equipment ..... $142,000
Personnel ........................ 189,000
Indirect costs ................... 102,000
$433,000
Clinton estimates that these costs will be recouped by December 31, 2011. The materials and equipment purchased have no alternative uses.
On January 1, 2008, because of recent events in the field, Clinton estimates that the remaining life of the patent purchased on January 1, 2007, is only 5 years from January 1, 2008.
Instructions
(a) Prepare a schedule showing the intangibles section of Clinton's balance sheet at December 31, 2008. Show supporting computations in good form.
(b) Prepare a schedule showing the income statement effect for the year ended December 31, 2008, as a result of the facts above. Show supporting computations in good form.