301569

Question 1

Wren Corp.’s trademark was licensed to Mont Co. for royalties of 15% of sales of the trademarked items. Royalties are payable semiannually on March 15 for sales in July through December of the prior year, and on September 15 for sales in January through June of the same year. Wren received the following royalties from Mont:

       March 15    September 15   Year 1    $10,000      $15,000   Year 2     12,000       17,000 Mont estimated that sales of the trademarked items would total $60,000 for July through December, Year 2. In Wren’s Year 2 income statement, the royalty revenue should be:

$41,000.

$38,000.

$29,000.

$26,000.

Answer 1

$26,000.

The royalty revenue should be based on the trademark sales during Year 2 (15% of them). The amount received on September 15 of Year 2, $17,000, was for the sales for the first 6 months of Year 2, and the estimated sales for the last 6 months of Year 2 were $60,000 in total. The royalty revenue for Year 2 was the $17,000 plus 15% of the $60,000 for a total of $26,000 ($17,000 + (0.15 × $60,000)).

Question 2

Income Statement

Answer 2

The income statement is a financial statement that shows an organization’s revenues and expenses for a defined period of time. The income statement is the financial statement used most often by investors as it provides information concerning the firm’s ability to sustain ongoing operations profitably. The income statement is also the statement that is most readily understood.

The single-step income statement displays the net income from ordinary operations without intermediate calculations. The multi-step income statement uses intermediate steps such as gross profit in displaying the net income from ordinary operations.

Question 3

2262.01

Answer 3

An intangible asset should be recognized as an asset apart from goodwill if it arises from contractual or other legal rights. Otherwise, it should be recognized as an asset apart from goodwill only if it is separable (i.e., it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged).

Question 4

2262.02

Answer 4

The following are examples of intangible assets that meet the criteria for recognition apart from goodwill because they meet the contractual-legal criterion:

a. Trademarks or trade names
b. Internet domain names
c. Noncompetition agreements
d. Royalty agreements
e. Franchise agreements
f. Patented technology
g. Computer software
h. Trade secrets