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Chapter 12: Question 2. (page 638)

Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift鈥檚 books is \(43,200. In January, Taylor Swift spends \)24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.

Short Answer

Expert verified

Answer

Two journal entries are made to record the expenditure and amortization. The expenditure amounts to $24,000 and the amortization expense amounts to $8,400 for the year 2019.

Step by step solution

01

Journal Entry

S. no.

Particulars

JF

Debit

Credit

1.

Patents

24,000

Cash

24,000

(Being patents purchased by cash)

2.

Amortization Expense

8,400

Patents

8,400

(Being amortization made on patents)

02

Calculation of amortization

Amortization=(CarryingcAmountofPatent+DefendingCost)脳18=($43,200+$24000)脳18=$8400

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Most popular questions from this chapter

On January 1, 2017, Dagwood Company purchased at par 6%

bonds having a maturity value of $300,000. They are dated January 1, 2017, and mature January 1, 2022, with interest received

on January 1 of each year. 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 the journal entry to record the interest revenue on December 31, 2017.

(c) Prepare the journal entry to record the interest received on January 1, 2018.

Question: (Recording and Amortization of Intangibles) Marshall Company, 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.

1/2/17

Purchased patent (8-year life)

\( 350,000

4/1/17

Purchase goodwill (indefinite life)

360,000

7/1/17

Purchased franchise with 10-year life; expiration date 7/1/27

450,000

8/1/17

Payment of copyright (5-year life)

156,000

9/1/17

Research and development costs

215,000

\)1,531,000

Instructions

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, 2017, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)

In examining financial statements, financial analysts often write off goodwill immediately. Comment on this procedure.

(Investment Classifications)For the following investments, identify whether they are:

1. Trading debt securities.

2. Available-for-sale debt securities.

3. Held-to-maturity debt securities.

4. None of the above.

Each case is independent of the other.

(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases,

which is expected next month, it will be sold.

(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30%

of its outstanding stock.

(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year.

(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money

has been tight recently and they may need to be sold.

(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.

(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project

planned 10 years from now.

Izzy Inc. purchased a patent for $350,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be reliably determined. Prepare the entry to record the amortization of the patent in its first year of use.
See all solutions

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