Question

PROBLEMS 2 3 P12-1 (Correct Intangible Assets Account) Reichenbach Co, organized in 2014, has set up a single ac- count for all intangible assets. The following summary discloses the debit entries that have been recorded 榭 during 2014 and 2015. Intangible Assets 8-year franchise; expiration date 6/30/22 10/1/14 Advance payment on laboratory space (2-year lease) 12/31/14 Net loss for 2014 including governmental incorporation 48,000 24,000 fee, 1,000, and related legal fees of organizing 5,000 (all fees incurred in 2014) Patent purchased (10-year life Cost of developing a secret formula (indefinite life) Goodwill purchased (indefinite life) Legal fee for successful defense of patent purchased above Research and development costs (development costs of 16,000 84,000 75,000 278,400 12,650 1/2/15 45,000 incurred related to 1/2/15 patent, which has achieved economic viability) 60,000 Instructions 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, 2015, recording any necessary amortiza- tion and reflecting all balances accurately as of that date. (Ignore income tax effects.)

Answer 1

Franchises	48,000
Prepaid Rent	24,000
Retained Earnings (Organization Costs of
$6,000 in 2014)	6,000
Retained Earnings ($16,000 – $6,000)	10,000
Patents ($84,000 + $12,650)	96,650
Research and Development Expense
($75,000 + $160,000)	235,000
Goodwill	278,400
Intangible Assets		698,050
Franchise Amortization Expense ($48,000 / 8)	6,000
Retained Earnings ($48,000 / 8 X 6/12)	3,000
Franchises		9,000
Rent Expense ($24,000 / 2)	12,000
Retained Earnings ($24,000 / 2 X 3/12)	3,000
Prepaid Rent		15,000
Patent Amortization Expense	9,170
Patents		9,170
($84,000 / 10) + ($12,650 X 7/115)
No amortization of goodwill; goodwill tested for impairment on at least an annual basis