(a)
Intangible Assets: These are the long-term assets having no physical existence. However, the benefits provided by these assets are used by the company for a long period of time. Example: Patent, Trademark,
Amortization: Itis the process of allocating the value of the intangible assets over its estimated useful life.
To Record: the
(a)
Explanation of Solution
Record the journal entries for the accounts related to intangible assets.
Date | Account Titles and Description | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
January | 2 | Patents | 46,800 | ||
Cash | 46,800 | ||||
(To record the legal costs for the purchase of patent) | |||||
January-June | Research and Development Costs | 230,000 | |||
Cash | 230,000 | ||||
(To record the payment made for research and development ) | |||||
July | 1 | Patents | 20,000 | ||
Cash | 20,000 | ||||
(To record the legal costs for the purchase of patent) | |||||
September | 1 | Advertising Expense | 40,000 | ||
Cash | 40,000 | ||||
(To record payment of advertising expense) | |||||
October | 1 | Copyright | 200,000 | ||
Cash | 200,000 | ||||
(To record acquisition of copyright) |
Table (1)
Description:
January 1: Payment of legal costs for the purchase of patent.
- Patents are intangible assets and is increased by $46,800. Therefore, debit the patents account with $46,800.
- Cash is an asset and is decreased by $46,800. Therefore, credit the cash account with $46,800.
January-June: Payment of Research and Development costs
- Research and Development costs are expenditures and is increased by $230,000. Therefore, debit the research and development cost account with $230,000.
- Cash is an asset and is decreased by $230,000. Therefore, credit the cash account with $230,000.
July 1: Payment of legal and other costs for the purchase of patent.
- Patents are intangible assets and is increased by $20,000. Therefore, debit the patents account with $20,000.
- Cash is an asset and is decreased by $20,000. Therefore, credit the cash account with $20,000.
September 1: Payment of Advertising expense
- Advertising expense are expenses and is increased that decreases the
stockholders’ equity by $40,000. Therefore, debit the research and development cost account with $40,000. - Cash is an asset and is decreased by $40,000. Therefore, credit the cash account with $40,000.
October 1: Acquisition of copyright for cash.
- Copyrights are intangible assets and is increased by $200,000. Therefore, debit the copyrights account with $200,000.
- Cash is an asset and is decreased by $200,000. Therefore, credit the cash account with $200,000.
(b)
To prepare: the journal entries to record the 2018 amortization expense for intangible assets.
(b)
Explanation of Solution
Prepare the journal entries to record the 2018 amortization expense for intangible assets.
Date | Account Titles and Description | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
December | 31 | Amortization Expense (1) | 11,700 | ||
Patents | 11,700 | ||||
(To record the amortization expense for patents ) | |||||
December | 31 | Amortization Expense (2) | 4,600 | ||
Copyrights | 4,600 | ||||
(To record the amortization expense for copyrights ) |
Table (2)
Working notes:
Calculate amortization expense for patents.
Patents cost on 31stDecember, 2017=$60,000
Useful life = 20 years.
Legal cost paid for patents on January 2, 2018 = $46,800.
Number of months used = July 1, 2018-December 31, 2108
Calculate the amortization expense for copyrights.
Cost of copyrights on 31stDecember, 2017= $36,000
Useful life = 10 years
Acquisition cost on October 1, 2018 = $200,000.
Number of months used = October 1, 2018-December 31, 2108
(c)
To Prepare: the intangible assets section of the balance sheet at December 31, 2018.
(c)
Explanation of Solution
Prepare the intangible assets section of the balance sheet at December 31, 2018.
A Corporation | ||
Balance Sheet (Partial) | ||
December 31, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Intangible Assets | ||
Patents
| 126,800 | |
Less: Amortization
| 17,700 | 109,100 |
Copyrights
| 236,000 | |
Less: Amortization
| 29,800 | 206,200 |
Total intangible assets | 315,300 |
Table (3)
(d)
To Prepare: the note to financial statements on A Corporation’s intangible assets as of December 31, 2018.
(d)
Explanation of Solution
A Corporation’s intangible assets have two patents and two copyrights. One patent is worth $60,000 that is amortized over 10 years. In addition to this legal costs of $46,800 was incurred to defend this patent, and thus is amortized over the remaining useful life of 9 years. Another patent was acquired worth $20,000 that is, amortized over 20 years. Two copyrights worth $36,000 and $200,000 were amortized over 10 years and 50 years respectively.
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