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Accounting for franchise patents and trade name

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Information concerning Haerhpin Corporation's intangibles is as follows:

1: On January 1, 2004, Haerhpin signed an agreement to operate as a franchisee of Hsian copy services Inc. for initial franchise fees of #75,000. Of this amount, $15,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,000 each beginning January 1, 2005. The agreement provides that the down payment is not refundable and no future services are required for the franchisor.

Look at the attached file for remaining part of the problem.

Required: Schedule showing the intangible section of balance sheer at Dec 31, 2004 and schedule showing all expenses resulting from the transactions that would appear on income statement

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Haerhpin Corporation
Intangible Assets
December 31, 2004
Franchise, net of accumulated amortization of $5,870 (Schedule 1) $52,830
Patent, net of accumulated ...

Solution Summary

The solution provides systematic accounting process for franchise arrangements, patents and trade name. Complete schedules and calculations are shown for the reader to increase the effectiveness of their learning.

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Accounting for Franchise, Patents, and Trade Name

Please help with part (a)

(Accounting for Franchise, Patents, and Trade Name) Information concerning Haerhpin Corporation's intangible assets is as follows.

1. On January 1, 2007, Haerhpin signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of $75,000. Of this amount, $15,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of $15,000 each, beginning January 1, 2008. 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, 2007, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is $43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Haerhpin's revenue from the franchise for 2007 was $950,000. Haerhpin 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. Haerhpin incurred $65,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2007. Legal fees and other costs associated with registration of the patent totaled $13,600. Haerhpin estimates that the useful life of the patent will be 8 years.
3. A trademark was purchased from Shanghai Company for $32,000 on July 1, 2004. Expenditures for successful litigation in defense of the trademark totaling $8,160 were paid on July 1, 2007. Haerhpin 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 Haerhpin's balance sheet at December 31, 2007. Show supporting computations in good form.

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