During 2015, Tracer Inc. purchased a franchise from Trail Holdings Corp. for $200,000. The contract to purchase also includes an obligation for Tracer to pay to Trail Holdings 1.5% of the revenue from the franchise operations annually. Revenue from the franchise for 2015 was $50,000. Tracer estimates the useful life of the franchise to be 16 years and takes a full year’s amortization in the year of purchase. Tracer incurred the following research costs in 2015.
Materials and equipment $25,000
Indirect costs $5,000
Tracer’s year end is Dec. 3, and reports under ASPE
a) Prepare a partial balance sheet, intangibles section, a good form with required disclosures, for Tracer for 2015.
b) Prepare a single-step income statement, a good form for Tracer for 2015. Income tax rate is 27%
c) In January 2016, the franchise business suddenly declined sharply and Tracer’s management gathered the following data about the franchise for purposes of an impairment test:
Fair value $150,000
Fair value less costs to sell $140,625
Value in use $225,000
Undiscounted future cash flows $168,750
Analyze and determine if the franchise is impaired as at January 2016 and, if so, the impairment amount