ACCT 551 – Intermediate Accounting - II
Week – 1 Assignment
E 12-4 Presented below is selected information for Palmiero Company.
1.Palmiero purchased a patent from Vania Co. for $1,500,000 on January 1, 2010. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2020. During 2012, Palmiero determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2012?
Amortization for 2010 & 2011 = (1500000/10) * 2 = 300,000
Amortization for 2012 = (1500000-300000) / (6-2) = 300,000
Total Accumulated amortization: 600,000
Palmiero should report the patent at (1500,000-600,000) = 900,000
2.Palmiero bought a franchise from Dougherty Co. on January 1, 2011, for $350,000. The carrying amount of the franchise on Dougherty’s books on January 1, 2011, was $500,000. The franchise agreement had an estimated useful life of 30 years. Because Palmiero must enter a competitive bidding at the end of 2020, it is unlikely that the franchise will be retained beyond 2020. What amount should be amortized for the year ended December 31, 2012?
Solution: Palmiero should amortize (350,000/10) = 35,000 on December 31 2012
3.On January 1, 2010, Palmiero incurred organization costs of $275,000. What amount of organization expense should be reported in 2012?
Solution: 275,000 should be reported as this was the cost that was incurred.
4.Palmiero purchased the license for distribution of a popular consumer product on January 1, 2012, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Palmiero can renew the license indefinitely for...
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