Exercise 9-12 Date Account Titles and Explanation Debit Credit LINK TO TEXT Acco

Question

Exercise 9-12

Date

Account Titles and Explanation

Debit

Credit

LINK TO TEXT

Account Titles and Explanation

Debit

Credit

LINK TO TEXT

Exercise 9-12

On January 1, 2017, Blossom Company had a balance of $320,000 of goodwill on its balance sheet that resulted from the purchase of a small business in a prior year. The goodwill had an indefinite life. During 2017, the company had the following additional transactions.
Jan. 2 Purchased a patent (5-year life) $280,350. July 1 Acquired a 8-year franchise; expiration date July 1, 2,025, $540,000. Sept. 1 Research and development costs $175,000.

Explanation / Answer

Jan 2 - Purchased a patent (5-year life) $280,350

Patent Purchase A/c Debit 280,350

To Bank a/c credit 280,350

(Being Patent purchase with 5 years life)

July 1 Acquired a 8-year franchise

Franchise Right Purchase a/c debit 540,000

To Bank a/c credit 540,000

(Being franchise rights purchase for the 8 years)

Sept 1 Research and development costs

Research and development a/c debit 175,000.

To Bank a/c credit 175,000

(Being research and developemnt expences paid)

31 Dec - Record Patents Expences for the current year - Patent are purchase for 5 years and its total cost will be amortised in books of account over 5 year.

Patent Amortisation Expences a/c debit 56,070

To Patent a/c credit 56,070

(Being current years patent expences recorded)

31 Dec - Record Franchises Expences for the current year - Franchises rights are purchase for 8 years and its total cost will be amortised in books of account over 8 year up to the end of its life. Current year the right were utilised only half year hence amount will be expences out for current year in that praportinate only

Franchises Right Expences a/c debit 33,750

To Franchise Right Purchase a/c credit 33,750

(Being current years franchises right expences recorded)

Dec 31 - Expences to tranfer out to Income & Expenditure A/c

Income & Expenditure A/c Debit 264,820

To Research and development expences a/c crebit 175,000

To Patent Amortisation Expences a/c credit 56,070

To Franchises Right Expences a/c credit 33,750

(Being expences are tranfer to income and expenditure account)

Account Balance as on 31 Dec

Patent = 224,280

Franchises Right = 573,750

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