Question

Problem 12-01 Cullumber Co., 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 and 2021. 7/1/20 10/1/20 12/31/20 $43,200 28,200 Intangible Assets 8-year franchise; expiration date 6/30/28 Advance payment on laboratory space (2-year lease) Net loss for 2020 including state incorporation fee, $1,500, and related legal fees of organizing, $5,500 (all fees incurred in 2020) Patent purchased (10-year life) Cost of developing a secret formula (indefinite life) Goodwill purchased (indefinite life) Legal fee for successful defense of patent purchased above Research and development costs 1/2/21 3/1/21 4/1/21 6/1/21 9/1/21 12,600 83,000 90,000 279,200 13,455 154,000

Answer 1

Prepare journal entries as follows:

Account Titles Credit Franchise Prepaid Rent Retained Earnings ($1500+$5500) Retained Earnings ($12600-$7000) Patents (583,000+ $13,455) R & D Expense ($90,000+ $154,000) Goodwill Intangible Assets Debit $43,200 $28,200 $7.000 $5,600 $96,455 $244.000 $279,200 $703,655 Franchise Amortization ($43,200 / 8 years) Retained Earnings [(S43200/8) 6/12] Franchises $5,400 $2.700 $8,100 Rent Expense (S28200/2) Retained Earnings ($14,100 x 3/12) Prepaid Rent $14.100 $3.525 $17.625 $9.119 Patents Amortization Expense Patents ($83,000/10 years) + ($13455*7/115) $9.119

Intangible Assets balances as follows: Intangible Assets Franchise (S43,200 - $8.100) Patents ($96,455 - $9.119) Goodwill $35.100 $87,336 $279.200