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Chapter 12: Q12-3BE (page 638)

Stephan Curry, Inc., spent \(68,000 in attorney fees while developing the trade name of its new product, the Mean Bean Machine. Prepare the journal entries to record the \)68,000 expenditure and the first year鈥檚 amortization, using an 8-year life.

Short Answer

Expert verified

Debit Trade names by $68,000 and credit cash account to $68,000. The next entry is to debit amortization expense by $8,500 and credit trade names to $8,500.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Amortization

Amortization is a strategy used in accounting to reduce the book value of a loan or intangible asset over a predetermined period.

02

Journal Entry

Date

Particulars

Debit

Credit

Trade Names

$68,000

Cash

$68,000

(Being Trade name is developed)

Amortization Expense

$8,500

Trade names

$8,500

(Being first-year amortization is recorded)

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Most popular questions from this chapter

On January 1, 2017, Hi and Lois Company purchased 12% bonds having a maturity value of \(300,000 for \)322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Hi and Lois Company uses the effective interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

Instructions

(a) Prepare the journal entry at the date of the bond purchase.

(b) Prepare a bond amortization schedule.

(c) Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017.

(d) Prepare the journal entry to record the interestand the amortization at December 31, 2018.

Research and development activities may include (a) personnel costs, (b) materials and equipment costs, and (c) indirect costs. What is the recommended accounting treatment for these three types of R&D costs?

Raleigh Corp. has an investment with a carrying value (equity method) on its books of \(170,000 representing a 30% interest in Borg Company, which suffered a \)620,000 loss this year. How should Raleigh Corp. handle its proportionate share of Borg鈥檚 loss?

The following is a list of items that could be included in the intangible assets section of the balance sheet.

1. Investment in a subsidiary company.

2. Timberland.

3. Cost of engineering activity required to advance the design of a product to the manufacturing stage.

4. Lease prepayment (6 months鈥� rent paid in advance).

5. Cost of equipment obtained.

6. Cost of searching for applications of new research findings.

7. Costs incurred in the formation of a corporation.

8. Operating losses incurred in the start-up of a business.

9. Training costs incurred in start-up of new operation.

10. Purchase cost of a franchise.

11. Goodwill generated internally.

12. Cost of testing in search for product alternatives.

13. Goodwill acquired in the purchase of a business.

14. Cost of developing a patent.

15. Cost of purchasing a patent from an inventor.

16. Legal costs incurred in securing a patent.

17. Unrecovered costs of a successful legal suit to protect the patent.

18. Cost of conceptual formulation of possible product alternatives.

19. Cost of purchasing a copyright.

20. Research and development costs.

21. Long-term receivables.

22. Cost of developing a trademark.

23. Cost of purchasing a trademark.

Instructions:

(a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet.

(b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements.

On July 1, 2017, Wheeler Company purchased \(4,000,000 of Duggan Company鈥檚 8% bonds, due on July 1, 2024. The bonds, which pay interest semiannually on January 1 and July 1, were purchased for \)3,500,000 to yield 10%. Determine the amount of interest revenue Wheeler should report on its income statement for the

year ended December 31, 2017.
See all solutions

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