Question

Gansac Publishing Company signed a contract with an author to publish her book. The signing took place on January 1, 2016, and a payment of $20,000 was made to obtain a copyright. Gansac expects to sell 200,000 books evenly between 2016 and 2020 at a price of $10 per book.

Required:

1.	Prepare journal entries to record the events related to the copyright and sales of the book during 2016 and 2017, assuming that sales were as projected.
2.	Next Level How would your answer change if Gansac expected sales of the book to be 100,000 copies in 2016, 70,000 copies in 2017, and 30,000 copies over the remainder of the copyright’s useful life?

CHART OF ACCOUNTS
Gansac Publishing Company
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation 195 Copyright LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 533 Amortization Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Prepare journal entries to record the events related to the copyright and sales of the book during 2016 and 2017, assuming that sales were as projected. Additional Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10

X

Next Level

How would your answer change if Gansac expected sales of the book to be 100,000 copies in 2016, 70,000 copies in 2017, and 30,000 copies over the remainder of the copyright’s useful life?

Gansac would use an activity method of amortization and record  of amortization in 2016 and  of amortization in 2017.

Answer 1

SOLUTION

1.

Year	Accounts titles and Explanation	Debit ($)	Credit ($)
2016
	Copyright	20,000
	Cash		20,000
	(To record Payment for copyright)
	Cash	400,000
	Sales (200,000 / 5 years * $10)		400,000
	(To record sale of 40,000 books)
	Amortization Expense	4,000
	Copyright ($20,000 / 5 years)		4,000
	(To record amortization of copyright)
2017
	Cash	400,000
	Sales		400,000
	(To record sale of 40,000 books)
	Amortization Expense	4,000
	Copyright ($20,000 / 5 years)		4,000
	(To record amortization of copyright)

2. If Gansac can predict the sales levels, it can use an activity method of amortization that better reflects the pattern in which economic benefits of the intangible asset are used or consumed in the business operations. Under an activity method of amortization, Gansac would record $10,000 [$20,000 * (100,000 / 200,000)] of amortization in 2016 and $7,000 [$20,000 * (70,000 / 200,000)] of amortization in 2017.