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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Amortization of Intangibles

On January 1, 2019, Boulder Investments Inc. acquired a franchise to operate a Burger Doodle restaurant. Boulder paid $225,000 for a 10-year franchise and incurred organization costs of $15,000.

Required:

1. Prepare the journal entry to record the cash payment for the franchise fee and the organization costs.

2. Prepare the journal entry to record the annual amortization expense at the end of the first year.

To determine

Concept introduction:

Franchise:

Intangible assets are those like tangible assets which offer future economic benefits but unlike tangible assets they do not have physical existence. Patents, copyrights, trademarks, leaseholds, franchise etc. are some of the examples of intangible assets. Franchise is a right given to the company to conduct operations in a particular geographical area for a term specified in the franchise contract.

Requirement 1:

Prepare journal entries to record payment of franchise fee and organization costs through cash.

Explanation

To prepare the journal entry we have to debit the franchise account and organization cost ...

To determine

Concept introduction:

Depletion:

When natural resources such as coal, iron ore, oil reserves and mineral etc. are extracted from the earth the company records the cost of extraction to the particular unit of the natural resource that is being extracted and the process of allocating cost according to the usage of natural resource during a specific period is called as depletion.

Requirement 2:

To explain:

Prepare journal entry to record annual amortization expense at the end of the first year.

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