Question

Accounting P9-7A

The intangible assets section of Redeker Company at December 31, 2011, is presented
below.

Problems: Set A 435
(b) Depreciation Expense—
building $570,000;
equipment $4,772,000

(c) Total plant assets $61,270,000
Patent ($70,000 cost less $7,000 amortization) $63,000
Franchise ($48,000 cost less $19,200 amortization) 28,800
Total $91,800

The patent was acquired in January 2011 and has a useful life of 10 years.The franchise was acquired
in January 2008 and also has a useful life of 10 years.The following cash transactions may
have affected intangible assets during 2012.
Jan. 2 Paid $45,000 legal costs to successfully defend the patent against infringement by
another company.

Jan.–June Developed a new product, incurring $140,000 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 $50,000 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 $100,000.The franchise has a useful life of 50 years.
Instructions

(a) Prepare journal entries to record the transactions above.
(b) Prepare journal entries to record the 2012 amortization expense.
(c) Prepare the intangible assets section of the balance sheet at December 31, 2012.
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Answer #2

Jan. 2Patents45,000

Cash.....................................................................45,000

Jan.– Research and Development

JuneExpense.....................................................................140,000

Cash.....................................................................140,000

Sept.1 Advertising Expense.....................................................50,000

Cash.....................................................................50,000

Oct.1 Franchise.......................................................................100,000

Cash.....................................................................100,000

(b) Dec. 31 AmortizationExpense—Patents.................................12,000

Patents.................................................................12,000

[($70,000 X 1/10) + ($45,000 X 1/9)]

31 Amortization Expense—Franchise.............................5,300

Franchise.............................................................5,300

[($48,000 X 1/10) +

($100,000 X 1/50 X 3/12)]

(c) Intangible Assets

Patents ($115,000 cost – $19,000 amortization)(1)............................................$ 96,000

Franchise ($148,000 cost – $24,500 amortization)(2).......................................123,500

Totalintangible assets................................................................................$219,500

(1) Cost ($70,000 + $45,000);amortization ($7,000 + $12,000).

(2) Cost ($48,000 + $100,000);amortization ($19,200 + $5,300).

answered by: tearrany
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