Question

Janes Company provided the following information on intangible assets:

a. A patent was purchased from the Lou Company for $1,000,000 on January 1, 2016. Janes estimated the remaining useful life of the patent to be 10 years. The patent was carried on Lou’s accounting records at a net book value of $410,000 when Lou sold it to Janes.

b. During 2018, a franchise was purchased from the Rink Company for $560,000. The contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase.

c. Janes incurred research and development costs in 2018 as follows:

Materials and supplies $ 146,000

Personnel 186,000

Indirect costs 66,000

Total $ 398,000

d. Effective January 1, 2018, based on new events that have occurred, Janes estimates that the remaining life of the patent purchased from Lou is only five more years.

Required:

1. Prepare the entries necessary for years 2016 through 2018 to reflect the above information.

2. Prepare a schedule showing the intangible asset section of Janes’s December 31, 2018, balance sheet.

Answer 1

1)

	Date	General journal	Debit	Credit
a.	January 1, 2016	Patent	$1,000,000
		Cash		$1,000,000
		(To record patent purchased)
	January 31, 2016	Amortization Expense	$1,00,000
		Patent(1,000,000/10)		$1,00,000
		( To record patent amortized)
	January 31 2017	Amortization Expense	$1,00,000
		Patent		$1,00,000
		(To record patent amortized)
b.	2018	Franchise	$560,000
		Cash		$560,000
		( To record Franchise purchased)
	2018	Amortization Expense	$56,000
		Franchise ($560,000/10)		$56,000
		(To record Franchise amortized)
c.	2018	Research and development expense	$398,000
		Cash		$398,000
		( To record research and development expense)
d.	December 31, 2018	amortization expense	$160,000
		Patent (1,000,000- 1,00,000-1,00,000 =8,00,000/5 =160,000)		$160,000
		(To record patent amortized)

2)

Balance sheet
December 31,2018
Intangible assets:
Patent	$640,000
Franchise	$504,000
Total intangible	$11,44,000

Notes:-

Patent = 8,00,000 - 160,000 = $640,000

Franchise = 560,000 -56,000 =