Assume that Pronghorn reports using ASPE.
Information for Pronghorn Corporation’s intangible assets follows:
1. On January 1, 2020, Pronghorn signed an agreement to operate as a franchisee of Copy Service Inc., for an initial franchise fee of $75,000. Of this amount, $33,000 was paid when the agreement was signed and the balance is payable in four annual payments of $10,500 each, beginning January 1, 2022. 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, 2020, of the four annual payments discounted at 8% (the implicit rate for a loan of this type) is $34,777. The agreement also provides that 4% of the franchisee’s revenue must be paid to the franchisor each year. The franchisor requires that Pronghorn provide it with some form of assurance verifying the revenue amount used to determine the 4% payment. Pronghorn’s revenue from the franchise for 2020 was $850,000. Pronghorn estimates that the franchise’s useful life will be 8 years.
2. Pronghorn incurred $45,000 in experimental costs in its laboratory to develop a patent, and the patent was granted on January 2, 2020. Legal fees and other costs of patent registration totalled $13,700. Pronghorn estimates that the useful life of the patent will be 6 years.
3. A trademark was purchased from Shanghai Company for $28,300 on July 1, 2017. The legal costs to successfully defend the trademark totalled $8,160 and were paid on July 1, 2020. Pronghorn estimates that the trademark’s useful life will be 15 years from the acquisition date.
a. Prepare a schedule showing the intangible assets section of Pronghorn’s statement of financial position at December 31, 2020.
b. Compute the total amount of expenses resulting from the transactions that would appear on Pronghorn’s income statement for the year ended December 31, 2020