Question

In: Accounting

Your answer is partially correct. Try again. Oriole Co., organized in 2016, has set up a...

Your answer is partially correct. Try again.

Oriole Co., organized in 2016, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2017 and 2018.

Intangible Assets
7/1/17	8-year franchise; expiration date 6/30/25	$50,400
10/1/17	Advance payment on laboratory space (2-year lease)	24,000
12/31/17	Net loss for 2017 including state incorporation fee, $2,500,
	and related legal fees of organizing, $6,500 (all fees incurred in 2017)	14,800
1/2/18	Patent purchased (10-year life)	82,000
3/1/18	Cost of developing a secret formula (indefinite life)	79,000
4/1/18	Goodwill purchased (indefinite life)	276,800
6/1/18	Legal fee for successful defense of patent purchased above	11,960
9/1/18	Research and development costs	148,000

1) Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2018, recording any necessary amortization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round all answers to 0 decimal places, e.g. 8,564. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

2) Reflecting all balances accurately as of that date. (Ignore income tax effects.)

A) Franchises

B) Goodwill

C) Prepaid Rent

D) Patents

Expert Solution

Answer (1)

Journal Entries

Particulars	Debit	Credit
Franchisee	$50400
Prepaid Rent	$24000
Retained Earnings	$14800
Patents ($82000 + $11960)	$93960
Research and development expenses ($79000 + $148000)	$227000
Goodwill	$276800
Intangible assets		$689960
(Being Intangibles assets segregated)

Amortisation expenses ($50400/8 year)	$6300
Retained earnings ($50400/8 year)*6 month/12	$3150
Franchisee		$9450
(Amortisation recorded on franchisee)

Rent expenses ($24000/2 year)	$12000.
Retained earnings ($24000/2 year)*3/12	$3000
Prepaid Rent		$15000
(being expenses debited for actual period)

Amortisation expenses ($82000/10 year) + ($11960/10 year*7 month/115 month)	$8273
Patent		$8273

Solution 2

Franchise = ($50408 - $9450) = $40950

goodwill = $276800

prepaide rent = ($24000 - $15000) = $9000

patents = ($93960 - $8273) = $85687

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