Date Account Titles and Explanation Debit Credit Dec. 31, 2020 (To clear Intangible Assets account) Dec. 31, 2020 (To correct for amortization on franchises) Culver Corp., a public company incorporated on June 28, 2019, set up a single account for all of its intangible assets. The following summary discloses the debit entries that were recorded during 2019 and 2020 in that account: INTANGIBLE ASSETS-CULVER July 1, 2019 8-year franchise; expiration date of June 30, 2027 $48,000 Oct. 1 Advance payment on office lease (2-year lease) 29,000 Dec. 31 Net loss for 2019 including incorporation fee, $1,000; related legal fees of organizing, $5,500; expenses of recruiting and training staff for start-up of new business, $4,100 16,200 Feb. 15, 2020 Patent purchased (10-year life) 75,600 Mar. 1 Direct costs of acquiring a 5-year licensing agreement 82,500 Apr. 1 Goodwill purchased (indefinite life) 284,400 June 1 Legal fee for successful defence of patent (see above) 12,815 Dec. 31 Costs of research department for year 75,000 Royalties paid under licensing agreement (see above) 2,775 The new business started up on July 2, 2019. No amortization was recorded for 2019 or 2020. The goodwill purchased on April 1, 2020, includes in-process development costs that meet the six development stage criteria, valued at $174,000. The company estimates that this amount will help it generate revenues over a 10-year period. (a) Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as at December 31, 2020, and record any necessary amortization so that all balances are appropriate as at that date. 31
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Prepare these
Dec. 31, 2020 (To clear Intangible Assets account)
Dec. 31, 2020 (To correct for amortization on franchises)
Dec. 31, 2020 (To correct for rent payments)
Dec. 31, 2020 (To record amortization expense on patents)
Dec. 31, 2020 (To record amortization expense on licences)
Dec. 31, 2020 (To record amortization expense on development cost)
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