Cullumber Co., organized in 2016, has set up a single account for all intangible
ID: 2590379 • Letter: C
Question
Cullumber Co., 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 and 2018.
Intangible Assets
7/1/17 8-year franchise; expiration date 6/30/25 $60,000
10/1/17 Advance payment on laboratory space (2-year lease) 26,400
12/31/17
Net loss for 2017 including state incorporation fee, $2,500,
and related legal fees of organizing, $6,500 (all fees incurred in 2017) 13,600
1/2/18 Patent purchased (10-year life) 82,400
3/1/18 Cost of developing a secret formula (indefinite life) 81,000
4/1/18 Goodwill purchased (indefinite life) 274,000
6/1/18 Legal fee for successful defense of patent purchased above 13,685
9/1/18 Research and development costs 140,000
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2018, recording any necessary amortization.
Net loss for 2017 including state incorporation fee, $2,500,
and related legal fees of organizing, $6,500 (all fees incurred in 2017) 13,600
1/2/18 Patent purchased (10-year life) 82,400
Explanation / Answer
General description
Debit
credit
Franchise
60000
Prepaid Rent
26400
Retained earnings(2500+6500)
9000
Retained earnings(13600-9000)
4600
Patents (82400+13685)
96085
Research and development expense (81000+140000)
221000
Goodwill
274000
Intangible assets
691085
Franchise Amortisation expense (60000/8)
7500
Retained earnings (60000/8)*6/12
3750
Franchises
11250
Rent expense (26400/2)
13200
Retained earnings (26400/2)*3/12
3300
Prepaid rent
16500
Patents amortization expense
9073
Patents
9073
(82400/10) + (13685*7/115)
General description
Debit
credit
Franchise
60000
Prepaid Rent
26400
Retained earnings(2500+6500)
9000
Retained earnings(13600-9000)
4600
Patents (82400+13685)
96085
Research and development expense (81000+140000)
221000
Goodwill
274000
Intangible assets
691085
Franchise Amortisation expense (60000/8)
7500
Retained earnings (60000/8)*6/12
3750
Franchises
11250
Rent expense (26400/2)
13200
Retained earnings (26400/2)*3/12
3300
Prepaid rent
16500
Patents amortization expense
9073
Patents
9073
(82400/10) + (13685*7/115)
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