Question

Pronghorn Enterprises has a December 31 fiscal year end and uses straight-line amortization to the nearest month for its finite-life intangible assets. The company has provided you with the following information related to its intangible assets and goodwill during 2020 and 2021:

2020
Jan. 9		Purchased a patent with an estimated useful life of 5 years and a legal life of 20 years for $45,000 cash.
May 15		Purchased another company and recorded goodwill of $560,000 as part of the purchase.
Dec. 31		Recorded adjusting entries as required for amortization.
Dec. 31		Tested assets for impairment and determined the patent and the goodwill's recoverable amounts were $41,000and $502,000, respectively.

2021
Jan. 2		Incurred legal fees of $18,000 to successfully defend the patent.
Mar. 31		Incurred research costs of $151,000.
Apr. 1		Purchased a copyright for $54,000 cash. The company expects the copyright will benefit the company for 10years.
July 1		Purchased a trademark with an indefinite expected life for $230,000 cash.
Dec. 31		Recorded adjusting entries as required for amortization.

Record the transactions and adjusting entries as required. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

2020:

Date	Account Titles and Explanation	Debit	Credit
choose a transaction date

	enter an account title to record cash purchase of patent	enter a debit amount	enter a credit amount
	enter an account title to record cash purchase of patent	enter a debit amount	enter a credit amount
	(To record cash purchase of patent.)
choose a transaction date

	enter an account title to record goodwill as part of purchase of another company	enter a debit amount	enter a credit amount
	enter an account title to record goodwill as part of purchase of another company	enter a debit amount	enter a credit amount
	(To record goodwill as part of purchase of another company.)
choose a transaction date

	enter an account title to record amortization expense	enter a debit amount	enter a credit amount
	enter an account title to record amortization expense	enter a debit amount	enter a credit amount
	(To record amortization expense.)
choose a transaction date

	enter an account title to record impairment loss on goodwill	enter a debit amount	enter a credit amount
	enter an account title to record impairment loss on goodwill	enter a debit amount	enter a credit amount
	(To record impairment loss on goodwill.)

2021:

Date	Account Titles and Explanation	Debit	Credit
choose a transaction date

	enter an account title to record successful defence of patent	enter a debit amount	enter a credit amount
	enter an account title to record successful defence of patent	enter a debit amount	enter a credit amount
	(To record successful defence of patent.)
choose a transaction date

	enter an account title to record research expense	enter a debit amount	enter a credit amount
	enter an account title to record research expense	enter a debit amount	enter a credit amount
	(To record research expense.)
choose a transaction date

	enter an account title to record cash purchase of copyright	enter a debit amount	enter a credit amount
	enter an account title to record cash purchase of copyright	enter a debit amount	enter a credit amount
	(To record cash purchase of copyright.)
choose a transaction date

	enter an account title to record cash purchase of trademark	enter a debit amount	enter a credit amount
	enter an account title to record cash purchase of trademark	enter a debit amount	enter a credit amount
	(To record cash purchase of trademark.)
choose a transaction date

	enter an account title to record amortization expense	enter a debit amount	enter a credit amount
	enter an account title to record amortization expense	enter a debit amount	enter a credit amount
	enter an account title to record amortization expense	enter a debit amount	enter a credit amount
	(To record amortization expense.)

Show the balance sheet presentation of the intangible assets and goodwill at December 31, 2021. (List Intangible Assets in order of Patents, Copyrights and Trademarks.)

Pronghorn Enterprises Balance Sheet (Partial) choose the accounting period

Assets
select an opening section name

enter a balance sheet item			$enter a dollar amount
select between addition and deduction

: enter a balance sheet item			enter a dollar amount	$enter a subtotal of the two previous amounts
enter a balance sheet item			enter a dollar amount
select between addition and deduction

: enter a balance sheet item			enter a dollar amount	enter a subtotal of the two previous amounts
enter a balance sheet item				enter a dollar amount
select a closing section name

				enter a total amount for this section
enter a balance sheet item

Answer 1

Journal entries

Date	Account title & explanation	Dr/cr	Debit (Amount in $)	Credit (Amount in $)
Jan 9 2020	Patent	Dr	45,000
	Cash	Cr		45,000
	(Being patent purchased)
May 15 2020	Goodwill	Dr	560,000
	Cash	Cr		560,000
	(Being goodwill recorded purchase as a part of company purchase)
Dec 31 2020	Amortisation expense	Dr	9000
	Accumulated amortisation-Patent	Cr		9000
	(Being patent amortsised over its useful life
Dec 31 2020	Impairment-Loss	Dr	58,000
	Goodwill	Cr		58,000
	(Being goodwill impaired as Recoverable amount is less than carrying amount)
Jan 2 2021	Patent	Dr	18,000
	Cash	Cr		18,000
	(Being legal fess incurred to defend patent capitalised)
Mar 31 2021	Research cost-expense	Dr	151,000
	Cash	Cr		151,000
	(Being research cost incurred which is treated as an expense)
Apr 1 2021	Copyright	Dr	54,000
	Cash	Cr		54,000
	(Being copyright purchased
July 1 2021	Trademark	Dr	230,000
	Cash	Cr		230,000
	(Being trademark purchased)

Apr 1 2021	Amortisation expense	Dr	13,500
	Amortisation expense-Patent	Cr		13,500
	(Being amortisation on patent recorded)
July 1 2021	Amortisation expense	Dr	4,050
	Amortisation expense-copyright	Cr		4,050
	(Being amortisation on copyright recorded

Balancehseet partial as at 31 decmber 2021

Working Notes-

1.Patents useful life is 5 years and hence it should be amortised over period of 5 years.

Amortisation for year 2020 is calculated as follows-

Total cost of patent/Useful life

=45,000/5=9,000

2.Patents fair value as on 31 dec 2020 is 41,000 while its carrying amount is 45000-9000=36,000 so no impairment is to be recorded.

3. As per gaap goodwill is not amortised but is tested for amortisation, goodwill on purchase is recorded against cash.Impairment loss on goodwill is calculated if Fair value is lesss than carrying amount, in the given case fair value is 502,000 & Carrying amount is 560,000,So impairment loss is to be recorded which is calculated as follows-

Fair value-Carrying amount

=560,000-502,000=58,000

4.Legal fees incurred on defending patyent is to be capitalised, thus patent si recorde for the amount incurred.

5.Research cost incurred is not be capitalised and is recorded as an expense as per the gaap.

6.Copyright is an intangible asset and is capitalised.

7. Trademark is also an intangible asset and is capitalsied

8.Amortisation on patent is recorded on December 2021, which is calculated as follows

Carrying amount as on 31 dec 2020=36,000

Legal fess incurred to defend patent capitalsied=18,000

Total carrying amount of patent= 54,000

Remaining useful life= 4 years

Amortisation on patent=54,0000/4

=13,500
9Amortisation on copyright is recorded on December 2021, which is calculated as follows

Total cost/useful life

=54000/10

=5,400

Copyright was purchased on april1 so amortisation is to be charged proportionately for 9 months, which is calculated as follows-

5,400*9/12=$ 4050