ACCT 4100 Lecture Notes - Lecture 5: Killing Floor 2, Battleblock Theater, Battlefleet Gothic
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Information concerning Marigold Corporationâs intangible assets is as follows.
1. | On January 1, 2017, Marigold signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $80,000. Of this amount, $16,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $16,000 each, beginning January 1, 2018. 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, 2017, of the 4 annual payments discounted at 10% (the implicit rate for a loan of this type) is $50,720. The agreement also provides that 8% of the revenue from the franchise must be paid to the franchisor annually. Marigoldâs revenue from the franchise for 2017 was $800,000. Marigold 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. | Marigold incurred $80,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2017. Legal fees and other costs associated with registration of the patent totaled $23,200. Marigold 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, 2014. Expenditures for successful litigation in defense of the trademark totaling $-1,700 were paid on July 1, 2017. Marigold estimates that the useful life of the trademark will be 20 years from the date of acquisition. |
Prepare a schedule showing the intangible assets section of Marigoldâs balance sheet at December 31, 2017.
2. Remaining Life
Taylor Lewis Company has provided information on intangibleassets as follows.
A patent was purchased from Craig Company for $4,000,000 on June1, 2015. Lewis estimated the remaining useful life of the patent tobe eight years. The patent was carried in Craigâs accountingrecords at a net book value of $3,500,000 when Craig sold it toLewis.
During 2016, a franchise was purchased from Faragher Company for$360,000. In addition, 8% of revenue from the franchise must bepaid to Faragher. Revenue from the franchise for 2016 was$1,950,000. Lewis estimates the useful life of the franchise to be12 years and takes a full yearâs amortization in the year ofpurchase.
Lewis incurred research and development costs in 2016 asfollows:
Materials and equipment | $286,500 |
Personnel | $153,700 |
Indirect costs | $95,355 |
$535,555 |
Lewis estimates that these costs will be recouped by December31, 2019. The materials and equipment purchased have no alternativeuses.
On January 1, 2016, because of recent events in the field, Lewisestimates that the remaining life of the patent purchased on June1, 2015, is only five years from January 1, 2016.
1. Prepare a schedule showing the intangible section of Lewisâsbalance sheet at December 31, 2016. Show supporting computations ingood form.
2. Prepare a schedule showing the income statement effect forthe year ended December 31, 2016, as a result of the facts above.Show supporting computations in good form.
Movies are expensive to produce and market. According to IMDb,the most expensive film on the record is Pirates of theCaribbean: At World's End, with a total budget of $336million. This movie and its budget were widely publicized prior tothe premiere of the film, and moviegoers were eager to see theresults of this massive movie budget.
Like other large project, movies have budgets. Potentialfinanciers look at the budget, the script, and other factors todecide whether to invest in the movie, Several catergories of costswill be in a movie's budget, including:
-- Story Rights
-- Screenplay
-- Producers and directors
--Cast
--Production Costs
--Special Effects
--Music
The typical budget you read about in the press includes onlyexpenses The movie budgets released to the general public do notinclude estimated box office receipts or other revenue streams. Inaddition, movie budgets do not usually include marketing costs,which can be another 50% or more of the film's publicizedbudget.
Producers and directors will frequently release budget figuresfor upcoming movies, and these budget figures will be reported inseveral news outlets. However, Los Angeles Times writer PatrickGoldstein states that "everyone" lies about their movie budgets.For example, it was reported initially that The Avengers,a Marvel Studios film, had an overall budget of $170 million.Another source indicated that the budget for The Avengerswas $260 million. Which one of these figures was the "correct"budget figure? No one outside of the management of the movie reallyknows.
Requirements
1. âIf a Hollywood movieâs box office number exceeds itsproduction budget, then that movie makes a profit.â From readingthe information given in the case, do you agree with thisstatement? Why or why not? |