Question

Question 8 View Policies Current Attempt in Progress ort Blossom Ltd. has these transactions related to intangible assets and goodwill in 2018, its first year of operations: Purchased a patent with an estimated useful life of five years for $38,680. The company that sold the patent to Collins registered the Jan. 2 patent 10 years ago. Apr. 1 Acquired another company and recorded goodwill of $295,400 as part of the purchase. July 1 Acquired a franchise for $272,800. The franchise agreement is renewable without charge and not expected to expire. Sept. 1 Incurred research costs of $161,700. Incurred development costs of $50,800. A marketable product has been identified and resources have been secured so that production 30 will start next year. Dec. 31 Recorded annual amortization. 31 Tested the intangible assets for impairment. Recoverable amounts exceeded carrying amounts for all intangible assets. Also tested goodwill and determined that it had a recoverable amount of $288,000. Prepare the entries to record the above transactions. Assume all costs incurred during January through September were incurred for cash. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)

Answer 1

The patent purchased should amortize over 5 years

Goodwill acquired should be amortized over 10 years period.

Franchise fee paid will be amortized over the period of the agreement or a maximum of 15 years. In this case there no time limit hence considered 15 years.

All initial research costs should be charged to the statement of profit and loss. Development costs should be capitalized because a marketable product has been identified and commercial production can be started. But for this year no impairment because production starts in the next year. Amortization should be charged only when benefits started flown to the company.

Journal Entreis

Jan.2	Patent	$            38,680
	Cash		$            38,680
	(Acquired patent)
Apr.1	Goodwill	$        2,95,400
	Cash		$        2,95,400
	(Acquired another company and goodwill recorded)
July.1	Franchise	$        2,72,800
	Cash		$        2,72,800
	(Acquired franchise )
Sept.1	Research costs expense	$        1,61,700
	Cash		$        1,61,700
	(Research costs charged to the statement of profit and loss)
Sept.30	Product Development	$            50,800
	Cash		$            50,800
Dec.31	Amortization expense- Patent	$              7,736
	Amortization-expense Goodwill	$            29,540
	Amortization expense- Franchise	$            18,187
	Accumulated amortization - Patent		$              7,736
	Accumulated amortization -Goodwill		$            29,540
	Accumulated amortization- Franchise		$            18,187
	(Recording amortization)

Asset	Cost of acquisition/Development	Useful life (years)	Amortization	Closing balance
Patent	38,680	5	7,736	30,944
Goodwill	2,95,400	10	29,540	2,65,860
Franchise	2,72,800	15	18,187	2,54,613
Product development	50,800		-