Question

1-

Sunland Company, organized in 2019, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2020.

1/2/20		Purchased patent (7-year life)		$305,900
4/1/20		Purchase goodwill (indefinite life)		347,000
7/1/20		Purchased franchise with 10-year life; expiration date 7/1/30		427,000
8/1/20		Payment of copyright (5-year life)		152,400
9/1/20		Research and development costs		217,000
				$1,449,300

a:Prepare the necessary entry to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles

b:Make the entry as of December 31, 2020, recording any necessary amortization.

c: Reflect all balances accurately as of December 31, 2020.

Use straight-line amortization
select an intangible asset GoodwillFranchisesResearch and development costsCopyrightsPatents		$enter a dollar amount
select an intangible asset Research and development costsGoodwillPatentsFranchisesCopyrights		$enter a dollar amount
select an intangible asset PatentsCopyrightsGoodwillFranchisesResearch and development costs		$enter a dollar amount
select an intangible asset GoodwillFranchisesCopyrightsPatentsResearch and development costs		$enter a dollar amount

Answer 1

(a)

Meaning of Intangible assets:

The assets that cannot be touched are known as intangible assets and the list includes Goodwill, Intellectual property like trademarks, patents, copyrights,Licensing rights like Franchises and R&D.

Treatment of Goodwill:

In accounting, goodwill is an intangible asset. The concept of goodwill comes into play when a company looking to acquire another company is willing to pay a price significantly higher than the fair market value of the company’s net assets. This is called Purchased Goodwill. However, internally generated goodwill will not be recognised.

Under US GAAP Standards, goodwill is an intangible asset with an indefinite life, and thus does not need to be amortized. However, it needs to be evaluated for impairment yearly, and many companies choose to amortize goodwill over a 10-year period.

In the given case, purchased goodwill need to be accounted as the separate line item in the Financials.

Treatment of Patent & Copyright:

Patents and Copyright balances need to be categorised into Intellectual Property.

Treatment of Research & Development:

Generally under US GAAP you would expense R&D costs when they are incurred, because future benefit is not certain. If you can show that the company will receive specific future benefit from the costs then some R&D costs can be capitalized.
In the given case, it is not mentioned about the feasibility of economic benefits from R&D costs. Hence, R&D costs need to be classified as an expense.

Entry:

Account	Debit($)	Credit($)
Goodwill	347,000
Intellectual Property	458,300
Franchise	427,000
Research & Development cost	217,000
Intangible Asset		1,449,300
(Being entry passed to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles)
Profit & Loss A/c	217,000
Research & Development cost		217,000
(Being entry passed for recording the R&D expenses)