Question

Janes Company provided the following information on intangible assets: a. A patent was purchased from the Lou Company for $950,000 on January 1, 2016. Janes estimated the remaining useful life of the patent to be 10 years. The patent was carried on Lou's accounting records at a net book value of $400,000 when Lou sold it to Janes b. During 2018, a franchise was purchased from the Rink Company for $550,000. The contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase. c Janes incurred research and development costs in 2018 as follows: Materials and supplies $145,000 185,000 65,000 Personnel Indirect COsts $395,000 Total d. Effective January 1, 2018, based on new events that have occurred, Janes estimates that the remaining life of the patent purchased from Lou is only five more years Required: 1. Prepare the entries necessary for years 2016 through 2018 to reflect the above information 2. Prepare a schedule showing the intangible asset section of Janes's December 31, 2018, balance sheet. Complete this question by entering your answers in the tabs below. Required 2 Required 1 Prepare the entries necessary for years 2016 through 2018 to reflect the above information. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1). Journal Entries 2016-2018 A). Patent Purchase Journal Entries Particulars Debit Credit Date 1-Jan-16 Patent A/c $950,000.00 $950,000.00 Lou Company Being Patent Purchased from Lou Company for $9,50,000/- A). Patent Depreciation for 2016 Journal Entries Particulars Debit Credit Date $ 31-Dec-16 Depreciation for Patent Accumulated Depreciation 95,000.00 95,000.00 Depreciating for Patent (Depreciable Value / Useful Life)*(No of Months used/12) 95000 =(950000/10) 12/12 Depreciable Value Cost of Purchase- Salvage Value (950000-0)-950000/- A). Patent Depreciation for 2017 Journal Entries Particulars Debit Credit Date $ 31-Dec-17 Depreciation for Patent Accumulated Depreciation 95,000.00 $ 95,000.00 Depreciating for Patent (Depreciable Value / Useful Life)*(No of Months used/12) 95000 =(950000/10) 12/12 Depreciable Value Cost Salvage Value (950000-0)-950000/- Purchase D). Patent Depreciation for 2018 Journal Entries Debit Particulars Credit Date $ 152,000.00 31-Dec-18 Depreciation for Patent Accumulated Depreciation $152,000.00 Depreciating for Patent (Depreciable Value / Useful Life)*(No of Months used/12) 152000=(760000/5)*12/12 Depreciable Value Cost Salvage Value (760000-0) =760000/- Purchase- Being Depreciation Changed Due to Remaining Revised useful life from 8 to 5 years B). Franchise Purchase Journal Entries Particulars Debit Credit Date $550,000.00 XX-XX-18 Franchise Rink Company $550,000.00 (Being Franchise Purchased from Rink Company for $5,50,000/-) A). Franchise Depreciation for 2018 Journal Entries Particulars Debit Credit Date $ 31-Dec-18 Depreciation for Franchise 55,000.00 Accumulated Depreciation $55,000.00 Depreciating for Franchise (Depreciable Value / Useful Life)*(No of Months used/12) 55000 =(550000/10) 12/12 Depreciable Value Cost of Purchase- Salvage Value (550000-0) =550000/- C). Research and Development Expenses Research and Development Expenses can't be capitalized until unless, its has usefulness for more then one year. In this scenario they didn't mention useful life of R&D Expenses and for R&D they didn't buy any Capital goods. Hence we don't want to capitalize this expenses 2). Schedule of Intangible Assets Particulars S. No Cost Accumulated Balance at the Depreciation year end 2018 (D=B-C) $ 950,000.00 $342,000.00 $ 608,000.00 $ 550,000.00$55,000.00 $ 495,000.00 A. Patent Franchise В C А В $1,103,000.00 C-A+B

Hence Book Value of

Patent $6,08,000/-

Franchise $4,95,000/-

As on 31 Dec 2018