Wileyplus 9-13 Gill Company, organized in 2017, has the following transactions r
ID: 2575211 • Letter: W
Question
Wileyplus 9-13
Gill Company, organized in 2017, has the following transactions related to intangible assets.
1/2/17 Purchased patent (6-year life) $474,000
4/1/17 Goodwill purchased (indefinite life) 360,000
7/1/17 14-year franchise; expiration date 7/1/2,031 588,000
9/1/17 Research and development costs 166,000
Prepare the necessary entries to record these intangibles. All costs incurred were for cash. Make the adjusting entries as of December 31, 2017, recording any necessary amortization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Explanation / Answer
Gill Company
Entries to record the purchase and amortization of intangibles:
Date
Account Titles and Explanation
Debit
Credit
2-Jan-17
Patent
$474,000
Cash
$474,000
(To record the purchase of Patent)
1-Apr-17
Goodwill
$360,000
Cash
$360,000
(To record the purchase of Goodwill)
1-Jul-17
Prepaid Frachise
$588,000
Cash
$588,000
(To record the purchase of Franchise)
1-Sep-17
Research and Development
$166,000
Cash
$166,000
(To record the Research and Development expenditure)
Adjusting entries as of December 31, 2017:
Dec 31,2017
Patent Amortization Expense
$79,000
Patent
$79,000
(To record amortization expense on Patent)
Dec 31,2017
NO ENTRY
(Goodwill is not amortized. Goodwill is tested for impairment each year)
Dec 31,2017
Franchise Fees
$21,000
Prepaid Franchise
$21,000
(To record Franchise fees for the six months July - December 2017)
Dec 31,2017
NO ENTRY
Research and Development cost is not amortized. The cost is expensed immediately.
Notes:
$474,000 x 1/6years = $79,000
Franchise expense for 2017, (July 1 – Dec 31) 6 months = $588,000 x 1/14 x 6/12 = $21,000
Date
Account Titles and Explanation
Debit
Credit
2-Jan-17
Patent
$474,000
Cash
$474,000
(To record the purchase of Patent)
1-Apr-17
Goodwill
$360,000
Cash
$360,000
(To record the purchase of Goodwill)
1-Jul-17
Prepaid Frachise
$588,000
Cash
$588,000
(To record the purchase of Franchise)
1-Sep-17
Research and Development
$166,000
Cash
$166,000
(To record the Research and Development expenditure)
Adjusting entries as of December 31, 2017:
Dec 31,2017
Patent Amortization Expense
$79,000
Patent
$79,000
(To record amortization expense on Patent)
Dec 31,2017
NO ENTRY
(Goodwill is not amortized. Goodwill is tested for impairment each year)
Dec 31,2017
Franchise Fees
$21,000
Prepaid Franchise
$21,000
(To record Franchise fees for the six months July - December 2017)
Dec 31,2017
NO ENTRY
Research and Development cost is not amortized. The cost is expensed immediately.
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