Reference no: EM133008074

Question - You noted the following related to the company's Intangible assets in connection with your audit of Paete Corporation's financial statements for the year 2021:

A) Paete, Inc. was organized in 2020 and began operations on January 1, 2021. Prior to the start of operations, the following costs were incurred by the corporation: Attorney's fees for incorporation P120,000; Incorporation filing fees with the Securities and Exchange Commission P20,000.

B) On January 2, 2021, the company developed a trademark to distinguish its products from those of its competitors. The following items are being treated as part of the cost of the trademark: Marketing research to study customer tastes P800,000; Design costs of trademark P3,000,000; Legal fees of registering trademark P300,000; Advertising to establish recognition of trademark P400,000; Registration fee with Patent Office P100,000. Through renewals, the trademark is expected to have an unlimited life.

C) On January 3, 2021, Paete signed an agreement to operate as a franchisee for 20 years of Can Company for an initial franchise fee of P1,200,000. On the same date, Paete paid P400,000 and agreed to pay the balance in four annual payments starting January 1, 2020. The down payment is not refundable and no future services are required of the franchisor. Paete can borrow at 4% for a loan of this type. Present and future value factors are as follows: Present value of 1 at 14% for 4 periods 0.59; Future amount of 1 at 14% for 4 periods 1.69; Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91.

Required - Based on the above, compute for the following:

1) How much is the carrying value of the organization cost on December 31, 2021 statement of financial position?

2) How much is the correct cost of the trademark?

3) How much should Pete record as acquisition cost of the franchise on January 3, 2021?

4) How much is the carrying value of the franchise on December 31, 2021?

5) How much amortization should Paete record for the year ended December 31, 2021?