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at December 31, 2021, Prepare an income stalement for the year ended December Assume a 35% average income tax rate. AICPA adapted Problem 13-62 Brannen Manufacturing Corporation was incorporated on January 3, 2020. The corporations financial Recording Entries for nangbie Assens LO1, ments for its first years operations were not examined by a CPA. We have been engaged to examine the 2, 3, 4 state- to examine the fi statements for the year ended December 31, 2021, and our examination is substantially completed tions adjusted trial balance appears as follows. corpora-
13-38 Chapter 13 Imtangible Assess and Goodwill Adjusted Trial Balance December 31, 2021 Cash DebitCredit S 11,000 68,500 $ 500 Inventories Equipment Patents 38,500 80,000 29,00010,000 102,000 10,500 24,000 24,000 50,000 59,000 Licensing agreement 2.... Deferred revenue Capital stock Retained eamings, January 1, 2021 Sales revenue. Cost of goods sold Selling and general expenses 147,500 12,500 317,000 7000 668500 454,000668 173,000 3,500 Other expenses Totals $1.156.000 $1,156,000 The following information relates to accounts that may still require adjustment. 1. Patents for Brannens manufacturing process were acquired January 2, 2021, for $68,000. An additional $34,000 was spent in December 2021, to defend the patent and was included in the cost of patents. The com- pany was not successful in defending the patent 2. The balance in the Franchise account properly reflects the carrying value of a franchise payment made on January 1, 2020, for a 5-year term. No amortization has yet been recorded in 2021. 3. On January 3, 2020, Brannen purchased Licensing Agreement 1, which was believed to have an indefinite useful life. The balance in the Licensing Agreement 1 account includes its purchase price of $48,000 and costs of $2.000 related to the acquisition. On January 1, 2021, Brannen bought Licensing Agreement 2, which has a life expectancy of 10 years. The halance in the Licensing Agreement 2 account includes the $58,000 purchase price and $2,000 in acquisition costs, but it has been reduced by a credit of $1,000 for the advance collection of 2022 revenue from the agreement. No amortization on License Agreement 2 has been recorded. 4. In carly 2021, an explosion caused a permanent reduction in the expected revenue producing value of Li- censing Agreement. The fair value of the agreement is estimated at 60% of its carrying value. No entry has been made for the explosion in 2021. 5. The balance in the Goodwill account includes (1) $8,000 paid December 30, 2020, for an advertising program that management believes will assist in increasing Brannens sales over a period of three to five years following the disbursement and (2) legal expenses of $16,000 incurred for Brannens incorporation on January 3,2020. Required Prepare journal entries as of December 31, 2021, as required by the information provided above. Ignore income taxes. AICPA adapted
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Date Particulars Debit$Credit 31-Dec-21 Legal Expenses 34000 Patent A/c (Legal expenditure incurred on defending legal suit on patent capitalised is now regulerised) 34000 31-Dec-21 Accumulated Depreciation 6000 Franchise A/c (24000*1/4Years) (Amorisation of Franchise for current year provided) 6000 31-Dec-21 Licensing agreement 2 Unearned revenue 1000 1000 (An unearned income received for 2022 redused from license agreement is now rectified) 31-Dec-21 Accumulated Depreciation 6000 Licensing agreement 2 (60000/10) (Amorisation of Licensing agreement 2 for current year provided) 6000 31-Dec-21 Accumulated Depreciation 20000 Licensing agreement 1 (50000*40%) (Loss occurred due to impairment is adjusted against the asset) 20000 30-Dec-21 Preliminery expenses 18000 Good will a/c (Legal expenditure incurred on set up of company is recognised as Preliminary expenditure and goodwill is adjusted with the amount so included in it) 58000

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