Janes Company provided the following information on intangible assets: A patent

Question

Janes Company provided the following information on intangible assets: A patent was purchased from the Lou Company for $1,200,000 on January 1, 2016. Janes estimated the remaining useful life of the patent to be 10 years. The patent was carried on Lou’s accounting records at a net book value of $450,000 when Lou sold it to Janes. During 2018, a franchise was purchased from the Rink Company for $600,000. The contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase. Janes incurred research and development costs in 2018 as follows: Materials and supplies $ 150,000 Personnel 190,000 Indirect costs 70,000 Total $ 410,000 Effective January 1, 2018, based on new events that have occurred, Janes estimates that the remaining life of the patent purchased from Lou is only five more years. Required: 1. Prepare the entries necessary for years 2016 through 2018 to reflect the above information. 2. Prepare a schedule showing the intangible asset section of Janes’s December 31, 2018, balance sheet.

Explanation / Answer

Janes Company Date/S. N. Accounts Title & Explanation Debit Credit Explanation for your understanding Amount in $ Amount in $ January 1, 2016 Patent 1200000 Cash 1200000 To record the purchase of patent December 31, 2016 Amortization expenses 120000 =1200000/10 Years Accumulated amortization on Patent 120000 To record the amortization expenses for the year December 31, 2017 Amortization expenses 120000 =1200000/10 Years Accumulated amortization on Patent 120000 To record the amortization expenses for the year During 2018 Franchise 600000 To Cash 600000 To record the purchase of franchise During 2018 Reserch & Development Expense 410000 It should be expensed out unless Development expenses meets asset recognition criteria To cash 410000 December 31, 2018 Amortization expenses 192000 Patent cost 1200000 Accumulated amortization on Patent 192000 Less : amortization expenses till 2017 240000 Book Value in the beginning of 2018 A 960000 Revised estimated remaining life of Patent B 5 Years Revised amortization expense =A/B 192000 December 31, 2018 Amortization expenses 60000 =600000/10 Years Accumulated amortization on Franchise 60000 Intangible Asset section Balance sheet of Janes Company as at December 31, 2018 Asset Non-current Asset Intangible asset Patent 1200000 Less : accumulated amortization 432000 768000 Franchise 600000 Less : accumulated amortization 60000 540000

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