Question

Janes Company provided the following information on intangible assets:

1. A patent was purchased from the Lou Company for $1,050,000 on January 1, 2019. 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 $420,000 when Lou sold it to Janes.
2. During 2021, a franchise was purchased from the Rink Company for $570,000. The contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase.
3. Janes incurred research and development costs in 2021 as follows:
   

Materials and supplies	$	147,000
Personnel		187,000
Indirect costs		67,000
Total	$	401,000

4. Effective January 1, 2021, 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 2019 through 2021 to reflect the above information.
2. Prepare a schedule showing the intangible asset section of Janes’s December 31, 2021, balance sheet.

Prepare a schedule showing the intangible asset section of Janes’s December 31, 2021, balance sheet.

	Partial Balance Sheet December 31, 2021 Intangible assets: Total intangibles $0

Answer 1

Journal entries
Date	Particulars				Debit	Credit
2019	patent				1050000
	cash					1050000
2019	amortization expenses (1050000/10)				105000
	patent					105000
2020	amortization expenses (1050000/10)				105000
	patent					105000
2021	franchise				570000
	cash					570000
2021	Research & development expenses				401000
	cash					401000
2018	amortization exp				168000
	patent					168000
2018	amortization exp (570000/10)				57000
	franchise					57000
working
amortization exp-patent = 105000
for 2 years = 105000*2 = 210000
unamortized cost = (1050000-210000) = 840000
amortization exp-patent = 840000/5 = 168000
Balance sheet
intengible assets
patent			1050000
less: amortization			-378000
patent -net			672000
Franchise			570000
less: amortization			-57000
franchise-net			513000
total intengible			1185000