Question

4. Crane Company, organized in 2017, has these transactions related to intangible assets in that year: Jan. 2 Patent bought that had an estimated useful life of 5-years for $325,000 Apr. 1 Goodwill was purchased as part of the acquisition of another company. It has an indefinite life and cost $360,000. July 1 Purchased a franchise that will last 9 years for $720,000. Sept. 1 Incurred research & development costs $185,000. Instructions (a) Prepare the necessary entries to record these intangibles. All were obtained by paying cash. (b) Make the entries as of December 31, 2017, recording any necessary amortization. (Hint: credit the intangible asset account) (c) What are the ending balances in 2017 for the three intangibles?

Answer 1

a Journal Entries Date Particulars 02-Jan Patent A/c Dr Debit Credit 325000 325000 To Bank A/C 360000 01-Apr Goodwill A/c Dr To Bank A/C 3600001 720000 Jul-01 Franchise A/c Dr To Bank A/C 720000 185000 Sep-01 Research and develepment A/c Dr To Bank A/C 185000

b Journal Entries Date Particulars 31-Dec Amortisation A/c Dr To Patents A/C (325000/5) Debit Credit 65000 65000 No amortisation for goodwill since it has 31-Decindefinite life 80000 31-Dec Amortisation A/c Dr To Franchise A/C (720000/9) 80000 185000 31-Dec Profit and Loss A/c Dr To Research and develepment A/c Dr 185000

c Ending Balances Particulars Patents Less:Amortisation Balance Amount Amount 325000 -65000 260000 360000 Goodwill Less:Amortisation Balance 360000 Franchise Less:Amortisation Balance 720000 -80000 640000