Exercise 12-6 Cullumber Company, organized in 2016, has set up a single account

Question

Exercise 12-6

Cullumber Company, organized in 2016, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2017.

$388,800

369,900

438,000

174,000

229,000

Make the entry as of December 31, 2017, recording any necessary amortization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Reflect all balances accurately as of December 31, 2017.

Use straight-line amortization

$

$1,599,700

1/2/17 Purchased patent (8-year life)

$388,800

4/1/17 Purchase goodwill (indefinite life)

369,900

7/1/17 Purchased franchise with 10-year life; expiration date 7/1/27

438,000

8/1/17 Payment of copyright (5-year life)

174,000

9/1/17 Research and development costs

229,000

Make the entry as of December 31, 2017, recording any necessary amortization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit Amortization Expense $ Patents $48600 Franchises $ Copyrights $

Reflect all balances accurately as of December 31, 2017.

Use straight-line amortization

Patents $340200 Franchises $ Copyrights $ Goodwill

$

$1,599,700

Explanation / Answer

Answer:

Journal Entry-

Balances as on December 31,2017-

Notes and Explanations-

1. As given in the question, goodwill has an indefinite life, it cannot be amortized because a definite period is not there to spread over the cost of goodwill. However, goodwill should be evaluated periodically for necessary impairment in the value and should be recorderd accordingly.

2. The research and development costs can be recognized as revenue expenses also. In this question, they are deferred for a period of time. However, the period for which the benefits will arise from these expenditures is not given, hence, they cannot be amortized.

3. All the other assets should also be evaluated periodically for any impairment in the value of the assets and amortization should be done according to revised value of the assets.

Account Titles and Explanation Debit Credit Amortization Expense $127200 Patents $48600 Franchises $43800 Copyrights $34800

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