Problem 4. Keshan Company, organized in 2017, has these transactions related to
ID: 2550975 • Letter: P
Question
Problem 4. Keshan Company, organized in 2017, has these transactions related to intangible assets in that year: Jan. 2 Purchased a patent (5-year life) $330,000. Apr. 1 Goodwill purchased (indefinite life) $360,000. July1 Acquired a 9-year franchise $450.000. Sept. 1 Research and development costs $185,000. Instructions (a) Prepare the necessary entries to record these intangibles. All costs incurred were for cash. (b) Make the entries as of December 31, 2017, recording any necessary amortization. (c) Indicate what the balances should be on December 31, 2017.Explanation / Answer
(a).
Date
Accounts Titles & Explanation
Debit
Credit
Jan. 2
Patent
$330000
Cash
$330000
(For recording purchase of patent)
April 1
Goodwill
$360000
Cash
$360000
(For recording purchase of goodwill)
July 1
Franchise
$450000
Cash
$450000
(For recording purchase of franchise)
Sep. 1
Research & Development costs
$185000
Cash
$185000
(For recording R&D costs)
(b).
Date
Accounts Titles & Explanation
Debit
Credit
2017
Dec. 31
Amortization Expense-Patent
$66000
Amortization Expense-Franchise
$25000
Patent
$66000
Franchise
$25000
(For recording amortization expense)
Working Note;
1. Amortization Expense-Patent ($330000 / 5) = $66000
2. Amortization Expense-Franchise ($450000 / 9) * 0.5 = $25000
(c).
Balance on December 31, 2017;
Patent ($330000 – $66000) = $264000
Franchise ($450000 – $25000) = $425000
Goodwill = $360000
Date
Accounts Titles & Explanation
Debit
Credit
Jan. 2
Patent
$330000
Cash
$330000
(For recording purchase of patent)
April 1
Goodwill
$360000
Cash
$360000
(For recording purchase of goodwill)
July 1
Franchise
$450000
Cash
$450000
(For recording purchase of franchise)
Sep. 1
Research & Development costs
$185000
Cash
$185000
(For recording R&D costs)
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