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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Gansac Publishing Company signed a contract with an author to publish her book. The signing took place on January 1, 2019, and a payment of $20,000 was made to obtain a copyright. Gansac expects to sell 200,000 books evenly between 2019 and 2023 at a price of $10 per book.

Required:

  1. 1. Prepare journal entries to record the events related to the copyright and sales of the boolk during 2019 and 2020, assuming that sales were as projected.
  2. 2. Next Level How would your answer change if Gansac expected sales of the book to be 100,000 copies in 2019, 80,000 copies in 2020, and 20,000 copies over the remainder of the copyright’s useful life?

1.

To determine

Prepare necessary journal entries of Company G for 2019 and 2020.

Explanation

Intangible assets: These are the long-term assets which are not physical in nature, but possess value. The intangible assets would be amortized over their definite useful life or limited useful life, and those with indefinite or unlimited lives are not amortized.

Copyright: Copyright is the legal right granted to the writers, musicians, artists, and owners to recreate, or develop their original work. In simple words, it is right to copy by the authors.

Prepare necessary journal entries of Company F for 2019 and 2020 as follows:

For 2019:

DateAccount Title and Explanation

Debit

($)

Credit

($)

Copyright20,000 
     Cash 20,000
 (To record the copyright purchased for cash)  

Table (1)

  • Copyright is an asset account, and it increases the value of asset. Hence, debit the copyright account with $20,000.
  • Cash is an asset account, and it decreases the value of asset. Hence, credit the cash account with $20,000.
DateAccount Title and Explanation

Debit

($)

Credit

($)

Cash400,000 
     Sales (1) 400,000
 (To record books sold for cash during the year)  

Table (2)

  • Cash is an asset account, and it decreases the value of asset. Hence, credit the cash account with $400,000.
  • Sales are the component of shareholders’ equity (revenue), and it increases the value of shareholders equity. Hence, credit the sales account with $400,000.

Working note (1):

Calculate the value of sales.

Sales = 200,000 booksNumber of year from 2019 to 2013×Price per book=200,00005 years×$10 per book=$400,000

DateAccount Title and Explanation

Debit

($)

Credit

($)

Amortization expense (2)4,000 
     Copyrights 4,000
 (To record the amortization expense incurred)  

Table (3)

  • Amortization expense is component of shareholders’ equity, and it decreases the value of shareholders equity

2.

To determine

Explain the manner in which the answer would change if the expected sale of book is to be 100,000 copies in 2019, 80,000 copies in 2020, and 20,000 copies over the remaining useful life.

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