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Chapter 12: Q15E (page 643)

Question: (Accounting for Organization Costs) Angelou Corporation was organized in 2016 and began operations at the beginning of 2017. The company is involved in interior design consulting services. The following costs were incurred prior to the start of operations.

Attorney fees in connection with organization of the company

\(15,000

Purchase of drafting and design equipment

10,000

Costs of meetings of incorporators to discuss organizational activities

7,000

State filing fees to incorporate

1,000

\)33,000

Instructions

  1. Compute the total amount of organization costs incurred by Angelou.
  2. Prepare the journal entry to record organization costs for 2017.

Short Answer

Expert verified

Answer

  1. Total organization cost = $23,000
  2. Organization cost account should be debited, and the cash account should be credited.

Step by step solution

01

Meaning of Organization costs 

Organizational expenses are those expenses that are associated with the setup of a firm. The cost of a survey linked with an evaluation of possible markets, educating personnel in their new roles, and legal expenditures to form bylaws and articles of incorporation are some transactions that are included in organizational costs (for a corporation).

02

(a) Computation of the total amount of organization costs incurred by Angelou

Attorney鈥檚 fees in connection with the organization of the company

$15,000

Costs of meetings of incorporators to discuss organizational activities

7,000

State filing fees to incorporate

1,000

Total organization costs

$23,000

Drafting and design equipment, $10,000, should be classified as part of fixed assets rather than as organization costs.

03

(b) Preparing journal entries to record organization costs for 2017.

Date

Particular

Debit ($)

Credit ($)

Organization Expense

23,000

Cash (Payables)

23,000

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Most popular questions from this chapter

Question: Michek Company loans Sarasota Company \(2,000,000 at 6% for 3 years on January 1, 2017. Michek intends to hold this loan to maturity. The fair value of the loan at the end of each reporting period is as follows.

December 31, 2017 \)2,050,000

December 31, 2018 2,020,000

December 31, 2019 2,000,000

Prepare the journal entry(ies) at December 31, 2017, and December 31, 2019, for Michek related to these bonds, assuming (a) itdoes not use the fair value option, and (b) it uses the fair value option. Interest is paid on January 1.

Carow Corporation purchased on January 1, 2017, as a held-to-maturity investment, \(60,000 of the 8%, 5-year bonds of Harrison, Inc. for \)65,118, which provides a 6% return. The bonds pay interest semiannually. Prepare Carow鈥檚 journal entries for (a) the purchase of the investment, and (b) the receipt of semiannual interest and premium amortization. Assume effective-interest amortization is used

Use the information provided in BE12-7. Assume that the fair value of the division is estimated to be \(750,000 and the implied goodwill is \)350,000. Prepare Waters鈥� journal entry, if necessary, to record impairment of the goodwill.

(Copyright Impairment) Presented below is information related to copyrights owned by Mare Company at December 31, 2017.

Cost

\(8,600,000

Carrying amount

4,300,000

Expected future net cash flows

4,000,000

Fair value

3,200,000

Assume that Mare Company will continue to use this copyright in the future. As of December 31, 2017, the copyright is estimated to have a remaining useful life of 10 years.

Instructions

  1. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. The company does not use accumulated amortization accounts.
  2. Prepare the journal entry to record amortization expense for 2018 related to the copyrights.
  3. The fair value of the copyright at December 31, 2018, is \)3,400,000. Prepare the journal entry (if any) necessary to record the increase in fair value.

Why does the accounting profession make a distinction between internally created intangibles and purchased intangibles?
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