/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q15E Question: (Accounting for Organi... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

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

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What constitutes 鈥渟ignificant influence鈥� when an investor鈥檚 financial interest is below the 50% level?

Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2015, the company expends \(325,000 on a research project, but by the end of 2015, it is impossible to determine whether any benefit will be derived from it.

  1. What account should be charged for the \)325,000, and how should it be shown in the financial statements?
  2. The project is completed in 2016, and a successful patent is obtained. The R&D costs to complete the project are \(130,000 (\)36,000 of these costs were incurred after achieving economic viability). The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2016 total \(24,000. The patent has an expected useful life of 5 years. Record these costs in the journal entry form. Also, record patent amortization (full year) in 2016.
  3. In 2017, the company successfully defends the patent in extended litigation at a cost of \)47,200, thereby extending the patent life to December 31, 2024. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2017.
  4. Additional engineering and consulting costs incurred in 2017 required to advance the design of a new version of the product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably, but it is highly uncertain if there will be a market for the new version of the product. Discuss the proper accounting treatment for this cost.

Question: (Accounting for Franchise, Patents, and Trademark) Information concerning Sandro Corporation鈥檚 intangible assets is as follows.

  1. On January 1, 2017, Sandro signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of \(75,000. Of this amount, \)15,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of \(15,000 each, beginning January 1, 2018. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2017, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is \)43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Sandro鈥檚 revenue from the franchise for 2017 was \(900,000. Sandro estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.)
  2. Sandro incurred \)65,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2017. Legal fees and other costs associated with registration of the patent totaled \(17,600. Sandro estimates that the useful life of the patent will be 8 years.
  3. A trademark was purchased from Shanghai Company for \)36,000 on July 1, 2014. Expenditures for successful litigation in defense of the trademark totaling $10,200 were paid on July 1, 2017. Sandro estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Instructions

  1. Prepare a schedule showing the intangible assets section of Sandro鈥檚 balance sheet at December 31, 2017. Show supporting computations in good form.

Prepare a schedule showing all expenses resulting from the transactions that would appear on Sandro鈥檚 income statement for the year ended December 31, 2017. Show supporting computations in good form.

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

Question: (Accounting for R&D Costs) Price Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2016, the company expends \(325,000 on a research project, but by the end of 2016 it is impossible to determine whether any benefit will be derived from it.

Instructions

  1. What account should be charged for the \)325,000, and how should it be shown in the financial statements?
  2. The project is completed in 2017, and a successful patent is obtained. The R&D costs to complete the project are \(110,000. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2017 total \)16,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2017.
  3. In 2018, the company successfully defends the patent in extended litigation at a cost of \(47,200, thereby extending the patent life to December 31, 2025. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2018.
  4. Additional engineering and consulting costs incurred in 2018 required to advance the design of a product to the manufacturing stage total \)60,000. These costs enhance the design of the product considerably. Discuss the proper accounting treatment for this cost.
See all solutions

Recommended explanations on Business Studies Textbooks

Finance Literacy (Business Studies)

Read Explanation

Public Relations Business Studies

Read Explanation

Corporate Finance

Read Explanation

International Business

Read Explanation

Strategic Direction

Read Explanation

Business Operations

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.