E9-12. Prepare entries to set up appropriate accounts for different intangibles;

Question

E9-12. Prepare entries to set up appropriate accounts for different intangibles; calculate amortization. (LO 4). AN On January 1, 2017, Haley Company had a balance of $360,000 of goodwill on its balance sheet that resulted from the purchase of a small business in a prior year. The goodwill had indefinite life. During 2017, the company had the following additional transactions. Jan. 2 Purchased a patent (5-year life) $280,000. July 1 Acquired a 9 year franchise: expiration date July 1,2026 $540,000 Sept. 1 Research and development costs $185.000. Instructions (a) Prepare the necessary entries to record the transactions related to intangibles. All costs incurred were for cash (b) Make the entries as of December 31, 2017, recording any necessary amortization. (c) Indicate what the intangible asset account balances should be on December 31, 2017

Explanation / Answer

Answer =A) Journal Entries Date Account Title and explanation Debit Credit January 02, 2017 Patent $               2,80,000     To Cash $                 2,80,000 (To Record the purchase of patent) July 01, 2017 Franchise $               5,40,000     To Cash $                 5,40,000 (To Record the purchase of patent) Sept 01, 2017 Research and Development $               1,85,000     To Cash $                 1,85,000 (To Record the purchase of patent) Dec, 31 2017 Amortization Expenses $                  80,300         To Patent $                     56,000        To Franchise $                     24,300 (To Record the amortization of patent and franchise) Amortization of patent = $ 280,000 / 5 Years = $                  56,000 Franchise amortization = ($ 540,000 / 9 Years ) X 6/12 months = $                  24,300 Answer = C) Intangible Account balance : Goodwill $               3,60,000 Patent ( $ 280,000 - $ 56,000) $               2,24,000 Franchise ($ 540,000 - $ 24,300) $               5,15,700 Research and development $               1,85,000 Note: Assets having indefinite life cannot be amortized (Goodwill) Note: Life of research and development or other data is not given so not amortized

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