Question

Janes Company provided the following information on intangible assets: a. A patent was purchased from the Lou Company for $1,400,000 on January 1, 2016. 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 $490,000 when Lou sold it to Janes. b. During 2018, a franchise was purchased from the Rink Company for $640,000. 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 2018 as follows: Materials and supplies Personnel Indirect costs Total $154,000 194,000 74,000 $422,000 d. Effective January 1, 2018, 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 2016 through 2018 to reflect the above information. 2. Prepare a schedule showing the intangible asset section of Janes's December 31, 2018, balance sheet.

Answer 1

Answer
Journal Entries
Date		Accounts	Debit	Credit
01-Jan-16		Patent	$14,00,000
		Cash		$14,00,000
		Record purchase of patent by cash
31-Dec-16		Amortization Expense - Patent	$ 1,40,000
		Accumulated Amortization - Patent		$ 1,40,000
		Amortization expense= Patent / Useful life=1400000/10 Year
31-Dec-17		Amortization Expense - Patent	$ 1,40,000
		Accumulated Amortization - Patent		$ 1,40,000
		Amortization expense= Patent / Useful life. (1400000-140000)/9 years
31-Dec-18		Amortization Expense - Patent	$ 2,24,000
		Accumulated Amortization - Patent		$ 2,24,000
		Amortization expense= Patent / Useful life (1400000-140000-140000)/5 years
2018		Franchise	$ 6,40,000
		Cash		$ 6,40,000
		Record purchase of Franchise by cash
31-Dec-18		Amortization Expense - Franchise	$     64,000
		Accumulated Amortization - Franchise		$     64,000
		Record full year amortization of patent. = (640000-64000)/10 years
2018		Materials & Supplies expense	$ 1,54,000
		Personnel Expense	$ 1,94,000
		Indirect costs	$     74,000
		Cash		$ 4,22,000
		Record entire R&D expense as cannot ascertain future uses

Extract of Janes company Balance sheet 2018
Assets
Acquired Intangible assets
Patent
Purchased                                                         1400000
Less: Accumulated amortization - Patent        -504000	$ 8,96,000
Franchise                                                          640000
Less: Accumulated amortization - Franchise -64000	$ 5,76,000
Total Intangible Assets	$14,72,000