Financial Accounting

Financial Accounting


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

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