Question

During the current year, Cartwright Corporation’s accountant recorded numerous transactions in an account entitled Intangible Assets, as follows:

Jan. 2	Paid incorporation fees.	$17,500
11	Paid legal fees for the organization of the company.	7,500
25	Paid for large-scale advertising campaign for the year.	15,000
Apr. 1	Acquired land for $15,000 and a building for $20,000 to house the R&D activities. The building has a 20-year life.	35,000
May 15	Purchased materials exclusively for use in R&D activities. Of these materials, 20% are left at the end of the year and will be used in the same project next year. (They have no alternative use.)	15,000
June 30	Paid expenses related to obtaining a patent.	10,000
Dec. 11	Purchased an experimental machine from an inventor. The machine is expected to be used for a particular R&D activity for 2 years, after which it will have no residual value.	12,000
31	Paid salaries of employees involved in R&D.	30,000

Required:

Prepare adjusting journal entries to eliminate the Intangible Assets account and correctly record all the items, including appropriate amortization adjustments. Cartwright amortizes patents over 10 years.

Answer 1

General Journal

Date	Account Title and Explanation	Debit	Credit
Jan.2	Incorporation Fees	$17,500
	Cash		$17,500
	(Being incorporation fee paid)
Jan.11	Legal Fees	$7,500
	Cash		$7,500
	(Being legal fees paid in cash )
Jan 25	Advertising Expense	$15,000
	Cash		$15,000
	(To record advertisement expense paid)
April 1	Land	$15,000
	Building	$20,000
	Cash		$35,000
	(To record land & building purchased )
May.15	Research &Development Cost	$15,000
	Materials		$15,0000
	(To record the reasearch & development cost is incurred)
June.30	Patent	$10,000
	Cash		$10,000
	(To record the parent is purchased )
Dec.11	Experimental Machine	$12,000
	Cash		$12,000
	(Being experimental machine purchased )
Dec.31	Amortization Expenses	$1,000
	Building ($20,000/20)		$1,000
	(Being the building is amortized over its useful life of 20 Years)
Dec.31	Amortization Expenses	$6,000
	Experimental Machine ($12,000/2)		$6,000
	(Being the experimental machine amortization over 2 years)
Dec.31	Salary Paid	$30,000
	Cash		$30,000
	(Being the salary paid to R&D employees)