Question

8. In 2018, Bratten Fitness Company made the following cash purchases:

The exclusive right to manufacture and sell the X-Core workout machine from Symmetry Corporation for $203,000. Symmetry created the unique design for the machine. Bratten also paid an additional $11,500 in legal and filing fees to attorneys to complete the transaction.

An initial fee of $260,000 for a three-year agreement with Silver’s Gym to use its name for a new facility in the local area. Silver’s Gym has locations throughout the country. Bratten is required to pay an additional fee of $5,300 for each month it operates under the Silver’s Gym name, with payments beginning in March 2018. Bratten also purchased $403,000 of exercise equipment to be placed in the new facility.

The exclusive right to sell Healthy Choice, a book authored by Kent Patterson, for $22,000. The book includes healthy recipes, recommendations for dietary supplements, and natural remedies. Bratten plans to display the book at the check-in counter at its new facility, as well as make it available online.

Required:
Prepare a summary journal entry to record expenditures related to initial acquisitions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Concepts and reason

Transaction: Transaction is an act of buying or selling goods or rendering any service that is reliably measured in terms of money.

Accounting: Accounting is a process of recording the transactions, classifying them in a specific manner, and then it is the process of summarizing, analysing, and interpreting the results. It is a process of preserving the accounts.

Journal entry: Journal entry is the recording of transactions in a systematic manner as they occur. Thus, it is a summary of all the transactions which has debit and credit aspects recorded chronologically.

Assets: Asset is the resource of a company to generate income. Asset is generally classified into fixed assets, current assets, tangible assets, and intangible assets. Fixed assets are the assets that are used to generate income over a long period. Current assets are the assets that are realized within the current financial year. Tangible assets are the assets that can be felt and touched. Intangible assets are the assets that cannot be felt or touched.

Fundamentals

Rules for debit and credit:

When asset increases, debit it and when asset decreases, credit it.

When liabilities increase, credit it and when liabilities decrease, debit it.

When stockholders’ equity increases, credit it and when stockholders’ equity decreases, debit it.

When the expenses and losses increase, debit them and when the expenses and losses decrease, credit it.

When incomes and gains increase, credit them and when incomes and gains decrease debit them.

Patent: It is one of the important intangible assets of the company. Legal rights for create or process and sell a product are called as patent.

Copyright: It is the legal right given to the owner to publish and sell the works. It is one of the important intangible assets of the company.

Expense: Expense is any outflow of cash to earn income for present and future period. It is the cost to company. Matching concept insists that expenses should be matched with revenue.

Determine the value of patent.

$\begin{array}{c}\\{\rm{Value of patent = Actual sales value + Additional cost}}\\\\{\rm{ = \$ 203,000 + \$ 11,500}}\\\\{\rm{ = \$ 214,500}}\\\end{array}$

Therefore, the value of patent is $214,500.

8)

Prepare journal entry to record the expenditures.

Therefore, patent is debited with $214,500, franchise is debited with $260,000, equipment is debited with $403,000 and copyright is debited with $22,000.

Ans: Part 8