Question

The intangible assets section of Sheffield Company at December 31, 2020, is presented below. Patents ($75,000 cost less $7,500 amortization) Franchises ($49,000 cost less $19,600 amortization) $67,500 29,400 $96,900 Total The patent was acquired in January 2020 and has a useful life of 10 years. The franchise was acquired in January 2017 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2021. Jan. 2 Paid $18,000 legal costs to successfully defend the patent against infringement by another company. Jan.-June Developed a new product, incurring $132,000 in research and development costs. A patent was granted for the product on July 1. Its useful life is equal to its legal life. Sept. 1 Paid $47,000 to an extremely large defensive lineman to appear in commercials advertising the company's products. The commercials will air in September and October. Oct. 1 Acquired a franchise for $134,000. The franchise has a useful life of 50 years.

Answer 1

1) Date Accounts Title & Explanation Debit Patents (Legal fees) Cash Credit Jan. 2 S18,000 S18,000 (To record legal costs for the patent) Jan-June Reseach & Development $132,000 Cash $132,000 (To record research and development costs) Sept. 1 Advertising Expense $47,000 $47,000 Cash (To record commercials advertising expense) Oct. 1 Franchise $134,000 Cash $134,000 (To record acquired a franchise) 2) Date Dec. 31 Amortization Expense-Patents Credit Accounts Title & Explanation Debit $9,500 Patents $9,500 (To record patents amortization) Dec. 31 Amortization Expense-franchise $5,570 S5,570 Franchise (To record franchise amortization) Workings: Amortization Expense-Patents: $9,500 [(S75,000 * 1/10) + ($18,000 * 1/9) Amortization Expense-Franchise $5,570 [(S49,000 * 1/10) + ($134,000 * 1/50 * 3/12)] Sheffield Company Balance Sheet (Partial) 3) As on December 31, 2021 Intangible Assets Patents ($93,000 cost less $17,000 amortization) Franchise ($183,000 cost less $25,170 amortization) Total intangible assets S76,000 S157,830 S233,830