Question

On January 2, 2016, Rafa Company purchased a franchise with a useful life of 10 years for $50,000. An additional franchise fee of 3% of franchise operating revenues also must be paid each year to the franchisor. Revenues during 2016 totaled $400,000. In its December 31, 2016, balance sheet, what net amount should Rafa report as an intangible asset-franchise? Multiple Choice $33,000 $43,800 $45,000 $50,000

Answer 1

Answer:

$45,000

Explanation:

Value of Franchise will be amortized on its useful life.

Value of Franchise = $50,000

Useful life = 10 years

Amortization as on December 31, 2016 = 50000/10 = $5000

Revenue and Franchise operating cost have nothing to do with the value of Intangible asset and amortization. All of these are operating entering which will be dealt in the income statement instead account for as value of Intangible asset.