PROBLEMS Problem 42-1 (IAA) Razor Company was granted a patent for an invention on January 1, 2016. The costs of licensing and registration, models and drawings amounted to P255,000. On January I, 2018, the entity paid P90,000 in successfully defending the patent in an infringement suit brought against the entity. On January 1, 2019, the entity paid P510,000 for the acquisition of a competing patent which has a remaining life of 16 years. The competing patent is intended to protect the original patent. Required: Prepare journal entries from 2016 to 2019 to record the expenditures in connection with the patent, including the annual amortization of patent. . Scanned with CamScannerProblem 42-2 (IAA) Blade Company spent a total of P510,000 in developing a patent which was applied for on July 1, 2016. The patent was issued on January 1, 2017. The cost of licensing was nominal and the. useful life of the patent is 15 years. On January 1, 2019, the entity purchased a related patent for P720,000. The related patent has a remaining useful life of 16 years. This related patent is believed to extend the useful life of the old patent. On January 1, 2020, the entity purchased a competing patent for P540,000 in order to protect the original patent. Required: Prepare journal entries from 2016 to 2020. Scanned with CamScannerProblem 42-3 (IAA) Crystal Company summarized the following transactions pertaining to patent. 2016 Spent P250,000 for the research and development of the patent. 2017 Jan. 1 Paid P60,000 to apply for and obtain right to the patent. The useful life of the patent is 10 years. 2018 Jan. 1 Purchased for P600,000 a new patent that is expected to prolong the life of the original patent by 6 years. 2019 Dec. 31 Acompetitor obtained rights to a patent which rendered the entity's patent obsolete. Required: Prepare journal entries relating to-the patent. Scanned with CamScannerProblem 42-15 (IAA) Centennial Company developed a trademark to distinguish its products from those of the competitors. Through advertising and other means, the entity is seeking to establish significant product identification to increase future sales. ~ The similarity between the trademark costs and other intangible and Operating costs has caused some confusion over proper accounting. The following items are being treated as Part of the cost of the trademark: Marketing research to study consumer tastes 400,000 Design costs of trademark 1,500,000 Legal fees of registering trademark 150,000 Advertising to establish recognition of trademark 200,000 Registration fee with Patent Office 50,000 What is the initial cost of the trademark? a. 1,700,0007 b. 1,900,000 c. 2,300,000 d. 2,100,000 Scanned with CamScannerProblem 42-16 (IAA) Northstar Company acquired a registered trademark for P600,000. The trademark has a remaining legal life of five years but can be renewed every 10 years for a nominal fee. The entity expects to renew the trademark indefinitely. What amount of amortization expense should be recorded for the trademark in the current year? a. 120,000 b. 15,000 ¢. 40,000 d. 0 Scanned with CamScannerProblem 42-17 (IAA) 2016, D January 1, 2016, ‘ ciowing intangible assets: . 7 P2,000,000. The trademar has a tema; : oe oa The trademark will be reneweq int future indefinitely without problem. . A patent for P6,000,000. The patent has an economic life le just 5 years. On December 31, 2016, the intangible assets are tested fo impairment. The trademark is now expected to generate cash flows of just P120,000 per year. The cash flows expected to be generated by the patent amount to P1,000,000 annually for each of the next 4 years. The appropriate discount rate for all intangible assets is 8%. ane ve get value of an ordinary annuity of 1 at 8% for4 Periods is 3.3], owntown Company ACquirey t What is the total i i . . ™| r the current year? Pairment loss to be recognized fo a. 1,990,000° 1,490,000 ¢. 1,300,000 4. 4,810,000 Scanned with CamScannerProblem 43-1 (IAA) Sanity Company acquired a copyright to a best seller novel for P285,000 on January 1, 2016. The copyright has a remaining legal life of 20 years. Sales of the novel are estimated as follows: 2016 50,000 copies 2017 30,000 copies 2018 10,000 copies 2019 5,000 copies Required: Prepare journal entries for 2016 and 2017. Scanned with CamScannerProblem 43-3 (IAA) uired three intangible assets before 2016 eung financial statements on December 31 late, no formal financial statements had been, Center Company t of intangible assets had been chargeq to The entity is prep: 2016. Before that d prepared and the cost ¢ operations when acquired. angible assets were accounted for in this The following inti manner. Acquisition date Useful life Cost Copyright 1 January 1, 2012 20 400,000 Copyright 2 July ‘1, 2013 15 360,000 Patent January 1, 2014 10 500,000 Required: 1. Prepare correcting entry to record the intangible assets on January 1, 2016, 2. Prepare jo . ; assets for 2016. 1 entry to record amortization of intangible Scanned with CamScannerProblem 43-4 (ACP) Staple Company entered into a franchise agreement to sel} the fa franchisor for 20 years. The agreement Provides ple Company shall pay an initial fee of P6,000,099 iz on the signing of the agreement at the beginning of current year. The agreement further provides that the franchisee shal] pay a periodic fee of 5% based on the annual gross sales. During the current year, the entity realized gross sales of P25,000,000 Required: Prepare journal entries for the current year on the books of the franchisee. Scanned with CamScannerProblem 43-5 (ACP) At the beginning of current year, Outlandish Company entered into a franchise agreement with Jollibee Company to sell Jollibee products for an indefinite period. The agreement provides for an initial fee of P20,000,000, P5,000,000 down upon signing of the contract and the balance in four equal annual payments every year-end. The entity signed 10% interest- bearing note for the balance. The collection of the note is reasonably assured. The agreement further provides that the franchisor will assist in the site location, make a survey of potential market and provide training of management and employees. Jollibee Company has already performed all initial services required under the agreement. Required: Prepare journal entries for the current year on the books of the franchisee. Scanned with CamScannerproblem 43-6 (AICPA Adapted) At the beginning of current year, Doomsday Company signed an agreement to operate as a franchisee of Perfect Pizza for an initial franchise fee of P8,000,000 for a period of 10 years Of this amount P3,000,000 was paid when the agre twas signed and the balance payable in five annual payments of P1,000,000 at every year-end. The franchisee signed a noninterest-bearing note for the balance. The market rate of interest for this note is 10%. The PV of 1 at 10% for 5 periods is 0.62, and the PV of an ordinary annuity of lat 10% for 5 periods is 3.79. In return for the initial franchise fee, the franchisor will help in locating the site, negotiate the lease or purchase the site, supervise the construction activity and provide training to employees. The initial services required of the franchisor are substantially performed. Required: Prepare journal entries on the books of the franchisee for the current year. Scanned with CamScannerProblem 43-10 (IAA) YY rented ‘At the beginning of current year, Hearsay Comps office space in a choice downtown location for 5 years. The annual rent is P600,000, payable at the beginning of each year starting in the current year. In order to obtain the lease, the entity paid P100,000. The entity made substantial alterations to the interior of the building, moved certain walls and added windows. The alterations which cost P200,000 are expected to have 8 useful life of 10 years. costing In addition, carpets, light fixtures and partitions P50,000 were added. The latter alterations have an eon life of 4 years and residual value of P2,000. Required: Prepare journal entries pe! the lessee for the current year. rtaining to the lease on the books of Scanned with CamScannerProblem 44-2 (IAA) ; Keen Company purchased an entity for P6,000,000 Cash at the beginning of the current year. The carrying amount and fair value of the assets of the acquired entity on the date of acquisition are as follows: Carrying amount Fair value Cash 50,000 50,000 Accounts receivable 500,000 500,000 Inventory 1,000,000 —_ 1,500,000 Patent 0 250,000 2,000,000 — 3,000,000 Property, plant and equipment In addition, the acquired entity had accounts payable only totaling P2,000,000 at the time of acquisition. The acquir entity has no other separately identifiable intangible assets. Required: 1. Determine the a; ; . idual approach. mount of goodwill using the resi Prepare journal entry to record the purchase of the entity: Scanned with CamScannerProblem 44-5 (IAA) Naughty Company assembled the following data relative oe certain entity in determining the amount to be paid for n° assets and goodwill: Assets at fair value before goodwill 2,600,000 Liabilities “soa aos Shareholders’ equity 1.7006 Net earnings after elimination of unusual or infrequent items: 2012 200,000 2013 230,000 2014 300,000 2015 250,000 2016 270,000 Required: Calculate the amount of goodwill under the following: 1. Average earnings are capitalized at 10%. 2. A return of 8% is considered normal on net assets at fair value. Excess earnings are capitalized at 15%. 3. A return of 10% is considered normal on net assets at fair value. Goodwill is measured at 5 years excess earnings. 4. A return of 10% is considered normal on net assets at fait value. Excess earnings are expected to continue for 10 years. Goodwill is measured by the present value method using a 12% rate. The present value of an ordinary annuity of 1 at 12% for 10 years is 5.65. Scanned with CamScannerProblem 45-2 (IFRS) i involved in a project uintessential Company has been invo. to hai an engine that runs on extracts from sugarcane. The entity commenced the project «in 2016. On December 31, 2016, the entity has already spent P2,500,000 on the project. On such date, there was no indication that the project would be commercially feasible, although the entity had made significant progress and was sufficiently sure of future success that it was prepared to outlay more funds on the project, After spending a further P1,200,000 on January 1, 2017, the entity had built a prototype that appeared to be successful. The prototype was demonstrated to a number of engineering entities and a number of these entities expressed interest in the further development of the engine. Convinced that it had now a product that it would be able to sell, the entity spent a further P500,000 on July 1, 2017 adjusting for the problems that the engineering firms pointed out. On November 1, 2017, the entity applied for a patent on the engine, incurring legal and administrative cost of P350,000. On November 15, 2017, the entity spent an additional amount of P800,000 on engineering and consulting costs to develop the project such that the engine was at manufacturing stage. This resulted in the changes in the overall design of the engine and costs of P100,000 were incurred on December 15, 2017 for minor changes required by the patent authority. In January 2018, the entity invited tenders for the manufacture of the engine for commercial sale. Required: Prepare journal entries for 2016 and 2017. Scanned with CamScannerProblem 45-4 (AICPA Adapted) Hypocrite Company i Y incurred the foll development costs in the current year: owing research an Equipment acquired for use in various research and development projects 975,000 Depreciation on the equipment 135,000 Materials used 200,000 Compensation costs of personnel 500,000 Outside consulting fees 150,000 Indirect costs appropriately allocated 250,00 What amount should be reported as research and developmer expense? a. 850,000 b. 1,085,000 x 1,235,000 d. 1,825,000 Scanned with CamScannerProblem 45-5 (AICPA Adapted) Invaluable Company incurred the following costs during the current year. Modification to the formulation of a chemical product 135,000 Trouble-shooting in connection with breakdowns during commercial production 150,000 Design of tools, jigs, molds and dies involving new technology 170,000 Seasonal or other periodic design changes to existing products 185,000 Laboratory research aimed at discovery of new technology 215,000 What total amount should be reported as research and development expense in the current year? 520,000 470,000 385,000 335,000 Boop Scanned with CamScanner