The intangible assets section of Sappelt Company at December 31, 2015, is presen
ID: 2448810 • Letter: T
Question
The intangible assets section of Sappelt Company at December 31, 2015, is presented below.
Patents ($70,000 cost less $7,000 amortization)
$63,000
Franchises ($48,000 cost less $19,200 amortization)
28,800
Total
$91,800
The patent was acquired in January 2015 and has a useful life of 10 years. The franchise was acquired in January 2012 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2016.
Jan. 2
Paid $27,000 legal costs to successfully defend the patent against infringement by another company.
Jan.-June
Developed a new product, incurring $140,000 in research and development costs. A patent was granted for the product on July 1. Its useful life is equal to its legal life.
Sept. 1
Paid $50,000 to an extremely large defensive lineman to appear in commercials advertising the company's products. The commercials will air in September and October.
Oct. 1
Acquired a franchise for $140,000. The franchise has a useful life of 50 years.
A. Prepare journal entries to record the transactions above.Explanation / Answer
1) Dr Patent $27,000
Cr Cash $27,000
You capitalise the legal costs to defend a patent if the case was successful. If not, you expense the legal costs.
2) GAAP prohibits recording research and development expenditures as assets.
Dr R&D expense $140,000
Cr Cash $140,000
3) Dr Advertising expense $50,000
Cr Cash $50,000
(you can expense $25,000 in Sept and $25,000 in Oct)
4) Dr Franchise $140,000
Cr Cash $140,000
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