Question

Janes Company provided the following information on intangible assets: a. A patent was purchased from the Lou Company for $1,250,000 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 $460,000 when Lou sold it to Janes. b. During 2021, a franchise was purchased from the Rink Company for $610,000. The contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase. c. Janes incurred research and development costs in 2021 as follows: Materials and supplies Personnel Indirect costs Total $ 151,000 191,000 71,000 $413,000 d. 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

Solution: 1A Credit Debit $1,250,000 Year Account Title Jan 1,2019 Patent Cash (To record the purchase of Patent) $1,250,000 $79,000 Dec 31, 2019 Amortization Expense {($1,250,000 - $460,000) / 10} Patent To record the Amortization expenses for the year) $79,000 $79,000 Dec 31,2020 Amortization Expense { $1,250,000 - $460,000) / 10} Patent (To record the Amortization expenses for the year) $79,000 B Credit Debit $610,000 Year Account Title During 2021 Franchise Cash To record the purchase of franchise $610,000 $61,000 Amortization Expense (610,000 / 10) Franchise (To record the Amortization expenses for the year) $61,000 C Credit Debit $413,000 Year Account Title 2021 Research and Development Cash (To record the research and development cost) $413,000 D Credit Debit $126,400 Year Account Title Dec 31, 2021 Amortization Expense {(1,250,000 - 79,000 - 79,000) - | Patent (To record the Amortization expenses for the year) $126,400 2 Intangible Asset Section Particulars Patent ($1,250,000 - 79,000 - 79,000 - 126,400) Franchise ($610,000 - $61,000) Research and Development Amount $965,600 $549,000 $413,000 $1,927,600