The CMS Co. began operations in January 2016. Listed below are selected transactions for 2016 and 2017:
?During 2016, $125,000 in R&D expenditures were made to develop a new product that was patented on July 1, 2016. CMS believes the patent will provide benefits for ten years. Legal fees incurred were $24,000.?On September 1, 2016, CMS paid EZ Company $180,000 for its patent on a successful product. The patent has six remaining years in its legal life.?On October 1, 2016,CMS applied for and received a trade name from the government. The legal costs associated with filing for the trade name were $10,000. In addition, during November 2016, the company incurred $50,000 in advertising its name. Benefits are expected indefinitely.?In early January 2017, CMS paid $20,000 in legal fees to defend the patent acquired from EZ. CMS's attorneys were successful in the lawsuit.?During 2017, R&D expenditures of $90,000 were incurred in the development of a product. A patent was received on December 1, 2017. Legal fees paid in connection with the patent were $15,000. The economic life of the product is expected to be five years.?
Required:
a.Prepare a partial balance sheet for CMS Company as of December 31, 2017, showing the intangible assets. In support of your answer, prepare a separate schedule for each intangible asset. The company amortizes its intangible assets using the straight-line method and recognizes amortization to the nearest month.b.Prepare a schedule to calculate CMS's expenses related to the above transactions for both 2016 and 2017.
What will be an ideal response?
?
| a. | CMS CompanyPartial Balance SheetDecember 31, 2017 | |||
| Intangible assets: | ? | |||
| ? | Patents (see Schedules 1, 2, and 3) | $187,150 | ||
| ? | Trade name (see Schedule 4) | 10,000 | ||
| ? | ? | Total intangible assets | $197,150 | |
| ? | ? | |||
| Patent-Schedule 1 | ? | |||
| ? | Cost | $24,000 | ||
| ? | Less: | 2016 amortization ($24,000´1/10´6/12) | (1,200) | |
| ? | ? | 2017 amortization | (2,400) | |
| ? | Book value of patent, 12/31/15 | $20,400 | ||
| ? | ? | |||
| Patent-Schedule 2 | ? | |||
| ? | Costs | $180,000 | ||
| ? | Less: 2016 amortization ($180,000´1/6´4/12) | (10,000) | ||
| ? | Add: Legal fees, 2017 | 20,000 | ||
| ? | Less: 2017 amortization ($190,000´1/5) | (38,000) | ||
| ? | Book value of patent, 12/31/15 | $152,000 | ||
| ? | ? | |||
| Patent-Schedule 3 | ? | |||
| ? | Costs | $15,000 | ||
| ? | Less: 2017 amortization ($15,000´1/5´1/12) | (250) | ||
| ? | Book value of patent, 12/31/15 | $14,750 | ||
| ? | ? | |||
| Trade name-Schedule 4 | ? | |||
| ? | Costs | $10,000 | ||
| ? | Book value of trade name, 12/31/15 | $10,000 | ||
| b. | ? | 2016 Expenses |
| ? | R&D expense | $125,000 |
| ? | Amortization expense-Patents ($1,200 + $10,000) | 11,200 |
| ? | Advertising expense | 50,000 |
| ? | Total expenses | $186,200 |
| ? | ? | ? |
| ? | 2017 Expenses | ? |
| ? | R&D expense | $ 90,000 |
| ? | Amortization expense-Patents ($2,400 + $38,000 + $250) | 40,650 |
| ? | Total expenses | $130,650 |
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