Question

Question 4 1. Prepare journal entries for 2016 for the following independent situations. Assume each organization has a December 31" year end. Keepers Inc, purchases a patent for $425,000 on January 1". Keepers estimates this patent to have a 5. year useful life. Blue Bat Corporation purchases one of their main competitors on March 31. Blue Bat paid $90,000 for this purchase which included assets of $70,000 and liabilities of $2,000. The goodwill is believed to have an indefinite benefit.

Answer 1

According to the requirement of the question, we have to record the journal entries. Both the situations are independent.

Keepers Inc. purchases a patent for $425,000 on January 1. Keepers estimates this patent to have a 5-year useful life.

Solution:- We have to record the Journal entries i.e.

Date	Account Titles and Explanation	Debit ($)	Credit ($)
Jan.1	Patents A/c	$425,000
	Cash A/c		$425,000
	(Record to acquire a patent)
Dec.31	Amortization Expense - Patents ($425,000/5)	$85,000
	Accumulated Depreciation		$85,000
	(Record to amortize the cost of Patent)

Now, we have to proceed with the next situation i.e.

Blue Bat Corporation purchases one of their main competitors on March 31. Blue Bat paid $90,000 for this purchase which included assets of $70,000 and liabilities of $2,000. The goodwill is believed to have an indefinite benefit.

Solution :- We have to record the Journal entries

Date	Accounts Title and Explanations	Debit ($)	Credit ($)
Mar.31	Assets	$70,000
	Goodwill (Balancing Figure)	$22,000
	Liabilities		$ 2,000
	Cash		$90,000
	(Record to acquire a competitor.)

Working Note:-

# Assets includes Cash, Receivables, Inventory, Property, Equipment and other Assets.

Calculation of Goodwill

Assets + Goodwill = Liabilities + Cash

$70,000 + Goodwill = $2,000 + $90,000

Goodwill = $92,000 - $70,000

Goodwill = $22,000

Thank you..

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