Question

anes Company provided the following information on intangible assets:

1. A patent was purchased from the Lou Company for $1,600,000 on January 1, 2019. Janes estimated the remaining useful life of the patent to be 10 years. The patent was carried on Lou’s accounting records at a net book value of $530,000 when Lou sold it to Janes.
2. During 2021, a franchise was purchased from the Rink Company for $680,000. The contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase.
3. Janes incurred research and development costs in 2021 as follows:
   

Materials and supplies	$	158,000
Personnel		198,000
Indirect costs		78,000
Total	$	434,000

4. Effective January 1, 2021, based on new events that have occurred, Janes estimates that the remaining life of the patent purchased from Lou is only five more years.

Required:
1. Prepare the entries necessary for years 2019 through 2021 to reflect the above information.
2. Prepare a schedule showing the intangible asset section of Janes’s December 31, 2021, balance sheet.

Answer 1

Credit Debit $ 16,00,000 1 Date Accounts Title and Explanation 01-Jan-19 Patent Cash (To record patent purchase from LOU) $ 16,00,000 S 1,60,000 $ 1,60,000 31-Dec-19 Amortization expense Patent |(1600000/10) (To record amortization Expense) 31-Dec-20 Amortization expense 1,60,000 Patent S 16,000 11 12 13 14 15 16 (To record amortization Expense) S 6,80,000 $ 6,80.000 2021 Franchise Cash (To record purchase of Franchise from RINK) 19 20 S 4.34.000 2021 Research and development expense Cash (To record research expense) $ 4,34,000 21 22 23 24 25 s 2,56,000 31-Dec-21 Amortization expense Patent (working notes) |(To record amortization Expense) S 2,56,000

27 68,000 68,000 31-Dec-21 Amortization expense Franchise (680000/10) (To record amortization Expense) Amount S 16.00.000 $ 1,60,000 Working notes: Particulars Patent (From Lou) purchase cost Amortization for 2019 (1600000/10) Amortization for 2020 Patent (From Lou) in 2021 Revised remaining life of patent Amortization expense (1280000/5) Net Patents as on 31-dec-2021 1,60,000 12,80,000 2.56,000 10.24.000

А Amount Partial Balance sheet As on 31-dec-2021 Particulars Amount Intangible Assets: Patent S 16,00,000 Less: Amortization expense S 5,76,000 (160000+160000+256000) Net patents Franchise 6,80,000 Less: Amortization expense 68,000 Net Franchise Total intangibles S 10.24.000 6,12,000 16,36,000

Amount 1600000 160000 Particulars Patent (From Lou) purchase cost Amortization for 2019 (1600000/10) Amortization for 2020 Patent (From Lou) in 2021 Revised remaining life of patent Amortization expense (1280000/5) Net Patents as on 31-dec-2021 160000 =+C34-C35-C37 =+C38/C39 =+C38-C40 Amount Partial Balance sheet As on 31-dec-2021 Particulars Amount Intangible Assets: Patent 1600000 Less: Amortization expense 576000 (160000+160000+256000) Net patents Franchise 680000 Less: Amortization expense 68000 Net Franchise Total intangibles =+C49-C50 =+C3-C4 =+D52+D55